Brent crude oil price forecast: what is the path of the least resistance?

Crude oil price parred some of its losses on Wednesday’s trade while remaining close to the one-month low hit about two weeks ago. A bearish outlook persists amid a soft demand outlook from China and the world. Besides, a stronger US dollar has made the asset more expensive for buyers with foreign currencies.

China’s stimulus hopes

Last week, investors were particularly keen on the US presidential elections and the National People’s Congress (NPC) standing committee meeting. In regards to the latter, those in the commodities market hoped that the subsequent announcement would boost optimism over China’s demand for crude oil and industrial metals.

However, just like in the case of the latest briefings by the Finance Ministry and NDRC, the announcement by NPC committee fell short of investors’ expectations. In the new stimulus measures, the committee did not highlight concrete details especially on how to improve private spending.

Amid the sluggish Chinese economy, OPEC lowered its projections for the country’s oil demand growth for both 2024 and 2025. In its November report, the organization of petroleum exporting countries cut its forecast for China’s demand growth from 580,000 barrels per day (bpd) last month to 450,000 bpd. Besides, it expects the country’s oil demand in 2025 to be at 310,000 bdp; a downward revision from its projection of 410,000 in October.

US Dollar index surges

The US dollar index has extended its previous gains as it continues to benefit from the Trump win; further exerting pressure on crude oil prices. As is the case with other dollar-priced assets, a stronger greenback makes the commodity more expensive for buyers holding foreign currencies.

During Wednesday’s early trade, the dollar index, which measures the value of the greenback against a basket of six other major currencies, rose to a six month high at $105.88 before pulling back slightly to $105.64 as at the time of writing. Investors are betting that Trump’s aggressive trade practices and policies will boost the US dollar while weighing on other currencies like the euro.

During his campaigns, Trump warned that the euro bloc will “pay a big price” for failing to purchase enough American exports. Besides, he threatened to impose blanket tariffs of 60% on China’s exports to the US.

Additionally, the dollar has found additional support from the Fed’s latest interest rate decision. While announcing a cut of 25 basis points, the central bank failed to offer clear guidance on the speed and timing of further rate cuts. Investors are lowering their bets of another cut during the Fed’s December meeting.

Soft Demand Growth Outlook

On Wednesday, crude oil prices reversed some of their previous losses even as they remained close to the one-month low hit in late October. The rebound was largely due to the commodity’s near term tightness.

In a note, ANZ analysts indicated that buyers in crude oil’s physical market have been particularly active. This means that any available cargo is quickly taken off the market; boosting prices.

Even so, a soft demand outlook and oversupply concerns continue to weigh on the prices. In addition to the lower projections on Chinese oil demand, the OPEC monthly report released on Tuesday further cast a bearish shadow on crude oil prices. In the report, the group lowered its forecast for 2024’s global oil demand growth. At the same time, its projection for 2025 came in lower; marking the fourth downward revision in a row.

In the closely watched report, OPEC now sees global oil demand growing by 1.82 million bpd in 2024. This is a decline of 107,000 bpd from last month’s report. It also lowered its projections for 2025’s global oil demand growth by 103,000 from its October report. The soft outlook on China’s demand growth largely contributed to this revision.