BMI Reveals Latest Oil Price Forecast

In a report sent to Rigzone by Fitch Group recently, analysts at BMI, a unit of Fitch Solutions, revealed their latest Brent oil price forecasts out to 2028.

BMI analysts project that the Brent price will average $85 per barrel this year, $82 per barrel in 2025, and $81 per barrel across 2026, 2027, and 2028, the report outlined.

A Bloomberg Consensus included in the report forecast that the Brent price will average $84 per barrel this year, $80 per barrel next year, $79 per barrel in 2026, $73 per barrel in 2027, and $72 per barrel in 2028. BMI is a contributor to the Bloomberg Consensus, the report highlighted.

A previous report sent to Rigzone by Fitch Group at the start of June showed the same BMI Brent oil price projections and the same Bloomberg Consensus price projections. Another report sent to Rigzone by Fitch Group at the end of March showed identical Brent price forecasts from BMI. In that report, the Bloomberg Consensus projected that the Brent price would average $83 per barrel in 2024, $80 per barrel in 2025 and 2026, and $72 per barrel in 2027 and 2028.

“This month, we hold to our forecast for Brent crude to average $85 per barrel in 2024, falling to $82 per barre in 2025,” the BMI analysts said in the latest report.

“Price performance in the year to date has been slightly weaker than we had anticipated, posing downside risk to our outlook. However, we expect consistent strength over the summer months to boost the annual average, offsetting some softness later in the year,” they added.

“Meanwhile, we are eyeing a potential downward revision to our forecast for 2025, with our fundamental data indicating that a supply surplus will emerge over the coming quarters,” the analysts went on to state.

In the report, the BMI analysts noted that Brent has been bouncing back from the losses it incurred in May, highlighting that the commodity had risen from a low of $77.5 per barrel on June 4 to around $86 per barrel.

“In part, this represents a correction from the steep – and, in our view, largely unwarranted – selloff in the wake of the most recent OPEC+ announcement,” the analysts said in the report.

“However, firmer fundamentals have also played a role. Global oil demand rises seasonally over the summer months and key exporters – notably in MENA – are forced to curb their exports to meet higher domestic consumption,” they added.

“These export declines will likely be especially pronounced this year, with OPEC+ production curbs remaining firmly in place. This is being reflected in the Dated Brent to Frontline swap, which turned positive after physically settled contracts regained their premium to financial futures,” they continued.

The BMI analysts noted in the report that the term structure has also strengthened, “with backwardation deepening at the front end of the futures curve”.

“The change has been most pronounced in the widening of the 1st-2nd month spread, which has increased by more than 50 percent month on month. This is consistent with our view that the physical supply and demand balance will tighten markedly over the coming summer months in the northern hemisphere,” they added.

The analysts said an improvement in market sentiment has also had a hand in the recent rally.

“Data from the Commodity Futures Trading Commission show an increase in ratio of long to short positions held by managed money in Brent,” they noted in the report.

“However, two caveats are worth making. Firstly, the ratio remains very low in historical terms. Secondly, the recent increase was more the result of market participants closing out their short positions, rather than going long,” they added.

“Likely investors have acknowledged the improvement in the fundamentals and recognize that significant price declines are unlikely in the short run. However, current market positioning does not speak to a high degree of confidence in a sustained rally substantially above current price levels,” they said.

“This is understandable, given a lackluster global economic growth outlook and the expected return of cut OPEC+ barrels to market beginning in October,” they continued.

In the report, the analysts warned that, over 2025, they expect oil demand to soften.

“[The] developed market is about to relapse into long-run structural decline, with consumption falling from 0.5 percent this year to 0.0 percent the next and remaining in negative territory for the rest of the decade,” they said.

“Cyclical economic booms could push growth higher, but rising energy efficiency and an accelerated shift to alternative fuels will progressively decouple economic and oil demand growth over the coming years,” they added.

“We are more bullish on the prospects for emerging market demand, but nevertheless forecast a slowdown in growth, from 2.9 percent in 2024 to 2.5 percent in 2025. This slowing growth is another factor influencing our forecast declines in the price of Brent next year,” they went on to state.

In a report sent to Rigzone late Tuesday by Standard Chartered Bank Commodities Research Head Paul Horsnell, analysts at the company, including Horsnell, highlighted that Brent had “very quickly filled the $1.41 per barrel chart gap left by the expiry of the August contract on 28 June”.

“September, the new front-month contract, rose $1.45 per barrel week on week to settle at $86.60 per barrel on 1 July; this is the highest front-month settlement since 30 April and $10.24 per barrel above the 3 June low,” the Standard Chartered analysts noted in the report.

“From a fundamental viewpoint we still think the rally can be sustained well past $90 per barrel given our projected Q3 and Q4 global oil balances. Importantly, we project that the Q3 deficit continues (at a lower level) into Q4, putting further downward pressure on inventories,” they added.

In the report, the Standard Chartered analysts said oil market sentiment became extremely bearish in April and speculative funds moved rapidly to the short side of the market.

“Our crude oil money-manager positioning index fell from +38.4 at the start of April to -30.7 at the start of May,” they said.

“We think this negative sentiment shift was heavily influenced by extremely weak U.S. transport fuel demand indications in the Energy Information Administration (EIA) weekly data. Some media coverage of the low readings spoke of multi-decade demand-lows and suggested that a collapse in demand was an indicator of a wider sudden discontinuity in the U.S. economy,” they added.

“At the time we suggested that these views might be overly alarmist and that revised data would likely show a less extreme outcome as had been the case with initial weak data in September and November 2023,” they continued.

The analysts highlighted in the report that SCORPIO, the company’s machine-learning oil price model, indicates a week on week increase of $1.70 per barrel to a July 8 settlement of $88.30 per barrel, “with technical indicators and oil price levels (specifically for this week the current narrow Brent-WTI and Brent-Dubai spreads) showing as the main positives”.

The report showed that Standard Chartered projects that ICE Brent crude oil nearby future price will average $98 per barrel in the third quarter of 2024 and $106 per barrel in the fourth quarter. The company expects the 2025 price to come in at $109 per barrel, according to the report.

In a separate Standard Chartered report sent to Rigzone by Horsnell last week, analysts at the company, including Horsnell, noted that Brent crude oil had rallied by $9.50 per barrel “since the low reached in the immediate and, in our view, incorrect market reaction to the 2 June OPEC+ meeting”.

The analysts highlighted in that report that they thought the rally “has significantly further to run, with the Q3 supply deficit only partially mitigated by the start of OPEC+ production increases in Q4”.

“Our 2024 global demand growth forecast is now 1.73 million barrels per day (previously 1.68 million barrels per day), following better than expected April data,” the analysts stated in that report.

Source: www.rigzone.com