Where next for oil prices? That’s the question Stratas Advisors looked at in a Stratas report sent to Rigzone by the Stratas team on Monday.
In the report, the company highlighted that, before “recent events” it was forecasting that, during the second and third quarters, the price of Brent crude “would move in the range between $75.00 and $80.00” and the price of WTI “would move in the range between $70.00 and $75.00”.
“The forecast was based on our expectation that demand would outstrip supply slightly during this period with demand growing mainly because of the improving situation in Asia (including China) coupled with strong demand in the United States,” Stratas said in the report.
“From the supply side we were expecting that OPEC+ would remain cautious in unwinding previous supply cuts and non-OPEC supply would increase by less than 1.0 million barrels per day during 2025,” it added.
Stratas said in the report that the biggest risk to this forecast has always been associated with the demand side and noted that that risk rested mainly with demand growth in non-OECD countries, including those in Asia.
“Certainly, with the new round of announced tariffs, the demand side risk has increased notably,” Stratas warned in the report.
“China is facing a dilemma, especially in the short term, because of its overdependence on exports, so fighting the tariffs with retaliatory tariffs that are likely to lead to even higher tariffs only puts these exports at more risk,” it added.
“China has been gaining a share of global exports, in part, because of falling producer prices further amplified by a depreciating currency. Doubling down on this strategy could put further pressure on its lagging domestic economy because China is a major importer of energy and other commodities that are, for the most part, priced in U.S. dollars,” it continued.
Stratas noted in the report that the U.S. economy will also be facing challenges with increased prices stemming from the tariffs.
“While the tariffs will have an impact on the U.S. economy, the U.S. economy has the flexibility to mitigate some of the impact,” Stratas stated in the report.
“For instance, in some cases, U.S. consumers can shift to domestic substitutes and U.S. companies can shift production relatively quickly, including to domestic facilities with the manufacturing capacity rate in the U.S. running around 77.0 percent and the utilization rate in the automotive sector running even further below historical rates,” it added.
“Regardless, both China and U.S. economies will be facing challenging times the longer the elevated tariffs stay in place … Consequently, unless there is an abrupt change in the tariff strategy of the Trump administration, there will be a hit to oil demand,” it continued.
Looking at supply, Stratas said in the report that it is still expecting that OPEC+ will be proactive in adjusting supply to align with demand, despite the recent announcement of supply increases in May.
“Coupled with our expectation that the U.S. shale sector will not add any material volumes this year, we still think that OPEC+ can establish a floor under oil prices unless there is a spiraling escalation of the trade war that drives the global economy into a recession,” Stratas said.
“The other caveat is that Saudi Arabia may push for more volume to drive oil prices down temporarily to encourage chronic overproducers (including Iraq and Kazakhstan) to reduce their supply to account for previous overproduction; however, we think this is unlikely,” it added.
Stratas noted in the report that it is expecting that the price of Brent crude will stay above $60 and will move back toward $70.00 “as we progress through Q2”.
“From an upside perspective, a favorable resolution of the tariffs will push the price of Brent crude to $75.00 and the price of WTI to $70.00,” Stratas said.
“From a downside perspective, a spiraling trade war could lead to the price of Brent crude breaking below $50.00 with it becoming more difficult for members of OPEC+ to maintain cooperation,” it warned.
In a BMI report sent to Rigzone by the Fitch Group on Monday, analysts at BMI said both the timing of the OPEC+ announcement and the messaging around it were unusual.
“In its accompanying communique, OPEC said that the decision had been taken in response to ‘continuing healthy market fundamentals and the positive market outlook’,” the BMI analysts said.
“At the time, oil prices were plummeting, with Brent down by 4.8 percent on the April 3 close,” they added.
“Meanwhile, market participants were rapidly reevaluating their economic expectations in light of reciprocal tariffs that, if implemented in full, will take the U.S. effective tariff rate to around 23 percent, higher than the levels seen during the Great Depression of 1930,” they continued.
In the BMI report, the BMI analysts noted that, historically, OPEC+ has tended to be cautious in its approach to supply hikes, preferring prices to overheat than to prematurely raise its production.
“The question is whether its most recent move represents a shift in strategy for the group,” they said.
“If so, and the ‘OPEC+ put’ is being lost, it will trigger a larger downward revision in our forecast for Brent,” they added.
“The group’s production cut agreement has been in place for nearly 10 years and, given strong prospects for non-OPEC+ supply growth and an anticipated slowdown in global demand growth, there is a case to be made for unwinding the cuts this year and allowing lower prices to rebalance the market so that OPEC+ producers can regain their share,” they continued.
“The downside is that it will undercut market stability, weaken the group’s influence over prices, and entail significant economic pain for commodity-dependent producers,” they warned.
On the other hand, it may be that the increases are temporary and, in response to the ongoing market turmoil, will ultimately be reversed, the BMI analysts stated in the report.
Rigzone has contacted the White House, the State Council of the People’s Republic of China, OPEC, and the American Petroleum Institute (API) for comment on the Stratas Advisors report. Rigzone has also contacted the White House and OPEC for comment on BMI’s report. At the time of writing, none of the above have responded to Rigzone.
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