 "Crude oil to remain volatile in Samvat 2081 amid OPEC+ production cuts")
Crude Oil in Samvat 2081: The past year (Smavat 2080) has been tumultuous for crude oil prices, marked by major fluctuations influenced by geopolitical tensions, economic indicators, and production decisions by major oil-producing nations, analysts said.
Brent crude oil prices saw a considerable decline from the beginning of Samvat 2080 (November 12, 2023) until October 28, 2024 dropping by 12.33 per cent from $82.52 to $72.34 per barrel, with a yearly high of $92.18 and a low of $68.68 per barrel, data from investing.com showed.
Mohammed Imran, a research analyst at Sharekhan by BNP Paribas, highlighted that recent oil market volatility stems from several key events. In early 2024, positive US economic data, with growth reaching 4.5 per cent in Q1, and China's property market stimulus temporarily boosted demand, pushing WTI crude prices above $85 (a 19 per cent year-to-date rise). OPEC+ production cuts also supported this upward trend.
However, in Q2, China's economic decline—marked by falling factory activity and domestic consumption—resulted in a 3.1 per cent drop in crude oil demand from January to September. While US driving demand increased seasonally, it could not offset the rising non-OPEC+ supply, especially from the US, Brazil, and Mexico, which added 1.2 million barrels per day (mbpd) to global production. This combination shifted the market into surplus by Q3.
Naveen Mathur, director of commodities & currencies at Anand Rathi Shares and Stock Brokers, noted that geopolitical tensions, particularly the Israel-Hamas conflict, had initially driven WTI prices to $90 in late 2023. However, the lack of major supply disruptions led prices to fall to around $70, primarily due to record US production and declining Chinese demand.
Oil outlook
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Looking ahead, both Imran and Mathur expressed scepticism regarding OPEC+'s optimistic demand forecasts for 2025. OPEC+ has projected demand growth of 1.93 million barrels per day for 2024 and 1.64 million for 2025, but revisions have already begun to reflect a more cautious outlook.
As highlighted by Imran, "China remains a huge risk factor, especially with its economy potentially underperforming until mid-2025." The downward adjustments in OPEC+'s forecasts underscore the challenges posed by weak Chinese consumption, which could further impact global oil dynamics.
The implications for India, the world's third-largest oil consumer, are substantial. With over 85 per cent of its oil requirements met through imports, the health of the Indian economy is closely tied to global oil prices.
On the other hand, lower oil prices could help manage inflation and reduce the current account deficit. Imran highlighted that "subdued oil prices and contained import expenses will support growth," suggesting that the Indian economy may benefit from a favourable oil market.
Geopolitical risks
However, uncertainties loom. Geopolitical tensions, particularly in the Middle East, could pose risks to supply stability. Mathur indicated that "geopolitical triggers will likely continue to keep oil prices volatile," and the outcome of the upcoming US presidential elections could further complicate the scenario, potentially leading to a shift in energy policies.
“In 2025, the price movement will be defined by OPEC +, who will actively work to stabilise prices by reducing production. In India and other countries, there is a growing focus on green energy to reduce carbon emissions, which is expected to lead to slower demand growth,” said Deveya Gaglani, a research analyst in commodities at Axis Securities.
While the potential for a revival in global oil demand exists, particularly if China can stabilise its economy, the interconnectedness of global markets necessitates vigilance from policymakers and industry analysts alike.
Further, Prathamesh Mallya, DVP, research, non-agri commodities and currencies, Angel One, highlighted that the world remains hopeful that China will bounce back from its slow growth to maintain momentum and the oil demand can see revival from China in 2025. So, the hope for revival in global oil demand remains optimistic if the US, China and European Union grow in tandem.