Wall Street Turns Bearish on Crude as Supply Risks Loom

Wall Street’s outlook on crude oil for the coming year is growing increasingly cautious, as two major financial institutions, Goldman Sachs Group Inc. and Morgan Stanley, have downgraded their price forecasts. Both banks are now predicting lower average prices for Brent crude, reflecting concerns about rising global supplies, including potential increases from the OPEC+ alliance.

Goldman Sachs has adjusted its forecast for Brent crude, predicting it will average $77 per barrel in 2025, a significant reduction from earlier projections. Similarly, Morgan Stanley now expects prices to fluctuate between $75 and $78 per barrel. These revisions come amid fears that the global oil market may enter a surplus phase, pushing prices down further over the next 12 months.

A key factor influencing these downward revisions is OPEC+’s potential reversal of voluntary supply cuts. The cartel, which has historically maintained tight control over global oil prices through coordinated production cuts, may now be shifting its strategy. Goldman analysts suggest that this move could be aimed at “strategically disciplining non-OPEC supply,” though they also caution that this could lead to further declines in crude prices under certain scenarios.

This bearish outlook is further supported by a recent dip in oil prices, driven by concerns over weakening demand growth, particularly in China, and increasing supplies from non-OPEC+ producers. Investors have become increasingly wary as Brent crude temporarily lost all of its year-to-date gains earlier this month. Morgan Stanley analysts note that while the crude oil market remains in a deficit, it may be as tight as it will get for some time. By the fourth quarter of 2024, the market is expected to return to equilibrium, which could further ease pressure on prices.

The combination of these factors paints a complex picture for the global oil market, where geopolitical dynamics and supply strategies from major players like OPEC+ will play crucial roles in shaping price movements in the near future. This shift in sentiment from major Wall Street banks signals a cautious approach, with potential implications for investors and economies that are heavily dependent on oil revenues.

As global economic uncertainties persist, the oil market’s trajectory remains difficult to predict, but the latest signals from Goldman Sachs and Morgan Stanley suggest that the era of high oil prices may be facing significant challenges.