Hers is good news for India on the fiscal and balance of payments fronts. Analysts expect crude oil prices to edge lower in the medium term, and settle at as low as $60/barrel early into 2025. This is even as Brent gained nearly 4.5% over the past week, and stayed above $81 during early Friday trade.
The trending down of prices in the medium term is expected on the likely surplus in the global market by 2025 despite the Organisation of Petroleum Exporting Countries’ decision to continue the voluntary cuts of 2.2 million barrels per day (bpd) till September 2024.
“We believe risks to a strong oil price outlook in the medium term are rising as OPEC+ strategy shifts from ‘managing’ oil prices to ‘protecting market share’,” said Motilal Oswal in its latest report. “The shift in strategy is being driven by OPEC+ production stagnating between 42-45 million barrels per day since January 2022 even as US oil production is set to rise 6% in the 2022-2025 period,” it said.
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The firm notes that supply from non-OPEC countries is expected to grow in 2025 and beyond, especially from the US with $40-$50 per barrel free cash flow breakeven for US shale players and their robust balance sheet. Analysts fear a supply glut which can further pull crude prices down in the medium term.
“Our 0-3 month forecast for Brent is $82 per barrel before prices head lower during Q4FY24 and into 2025 when we expect them to settle at $60 per barrel,” Citi had said.
The International Energy Agency expects non-OPEC supply to rise by a robust 1.4-1.5 million barrels per day in 2024 or 2025.
In the near term, however, analysts at Citi expect some volatility in prices with potential upside risks due to seasonal factors and ongoing geopolitical tensions.
“A combination of multi-year high OPEC+ spare capacity and a robust non-OPEC supply response are driving market share loss concerns for OPEC and could be a key hurdle to oil spiking toward the $90-100 per barrel range,” Motilal Oswal said.
As per analysts at Motilal Oswal, these fundamentals can improve profitability and stability of the state-owned oil marketing companies.
In Q1FY25 OMC’s marketing margins on petrol and diesel have averaged Rs 4.9 and Rs 2.7 per liter respectively, while the current petrol/diesel marketing margins are even higher at Rs 10.3/5.7 per liter.
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“OMCs have continued to strengthen their balance sheets as we estimate a consolidated negative debt-to-equity ratio of 1x/0.4x/0.6x for HPCL/BPCL/IOC in FY26,” it said. Analysts see OMCs as the best way to play a range-bound crude oil price environment with rising downside risks.
The firm remains constructive on upstream and does not see a sharp collapse in oil prices yet amid rising volume growth. However, analysts see risks to net realizations of $74 per barrel in FY26E have risen for these companies.
