PETALING JAYA: Amid the escalating conflict within the Middle East, experts expect lower global oil prices in 2025 compared with this year due to the build-up of global oil inventories.
If this scenario pans out, it would relieve inflationary pressures on corporate Malaysia with the impending RON95 fuel subsidy adjustments.
The rationalisation of RON95 subsidies is expected to result in higher petrol prices.
Oil analysts and economists are forecasting oil prices to be in the range of US$75 to US$82 per barrel in 2024 and US$75 to US$79 in 2025.
MARC Ratings Bhd chief economist Ray Choy expects some downside to Brent oil price for the remainder of the year, with the price averaging at US$80 per barrel this year.
He anticipated oil prices to average at US$75 in 2025, within a range of US$65 to US$80.
“Next year’s downside to oil prices is a combination of an uncertain recovery in China, the eurozone’s tepid recovery and softening US labour markets.”
Of note, the Organisation of the Petroleum Exporting Countries and its allies (Opec+) is expected to increase the supply of oil in 2025, compounded by potential production increases from the United States.
“Mitigating the downside risk to oil prices are the easing of the US Federal Reserve rates, decreasing inventory levels and China’s stimulus efforts.
“Additionally, a further escalation of the Middle East conflict could increase geopolitical risk premiums in the oil market, driving prices upward,” he added.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid is projecting crude oil price to be at US$75 in 2024 and 2025.
He said the voluntary production cuts among the Opec+ member countries, amounting to 2.2 million barrels per day, have been extended until next month.
By Dec 1, he said the voluntary cuts would be gradually phased out.
“Hence, we are looking at higher crude oil supplies going forward amid soft demand, especially from China due to their slowing economy and the proliferation of electric vehicles globally.
“However, the prospects of crude oil prices in the near term will be very much centred on the evolving nature of the Middle East tension.”
In light of the current military conflict between Israel and Hezbollah, Mohd Afzanizam said crude oil prices are likely to stay elevated.
He added that the recent ballistic missile attack by Iran on Israel had led to “higher “temperatures” in the geopolitical risks.
“Given that Iran is the fifth largest crude oil producer, which accounts for 4.8% of total crude oil production globally, it might give the impression that crude oil supplies could be disrupted,” he added.
OCBC Bank senior Asean economist Lavanya Venkateswaran expects Brent crude averaging at US$81.3 per barrel in the fourth quarter of 2024 (4Q24) versus US$78.7 in 3Q24.
This would take the full-year average to US$82, implying growth in oil prices would remain flat in 2024 (2023 average: US$82.2).
For 2025, she expects oil prices to ease further.
“The balance of risks is skewed towards the downside due to the anticipated buildup in global oil inventories in 2025, in our view. This is expected to weigh on oil prices, with Brent crude averaging at US$79 per barrel,” Lavanya noted.
As at press time, the international benchmark Brent crude was down by 0.1% to about US$78 per barrel.
Maybank Securities Thailand analyst Chak Reungsinpinya, while maintaining Brent oil price forecasts at US$82 and US$75 for 2024 and 2025 respectively, expects the supply-side dynamics as the biggest downside risks.
Uncertainties and continued output growth from exempted Opec members and non-Opec countries would likely weigh on oil prices for the next three to six months, he said.According to the United States Energy Information Administration, Brent crude oil spot price is expected to average US$82 in 4Q24 and average U$84 in 2025.
“Although market concerns over economic and oil demand growth, particularly in China, have increased, causing oil prices to fall, Opec+ production cuts mean less oil is being produced globally than is being consumed,” it said.
On inflationary pressures in the event of a likely hike in oil prices, Lavanya said this would depend on whether higher global oil prices are reflected onto domestic retail fuel prices.
With retail fuel subsidies still in place, she expects the inflationary impact to be relatively muted.
Afzanizam said subsidies for RON95 have yet to be adjusted and therefore, he expects no material impact from the rise in global crude oil prices.
“On diesel, the share in the consumer price index (CPI), which measures headline inflation, is low at 0.2%. Hence, the rise in diesel prices should be manageable.
“However, there could be a risk that businesses might raise their prices to gain more profits. This would require robust monitoring by the relevant authorities,” he added.MARC’s Choy said elevated oil prices are unlikely to significantly drive inflation, whilst consumers remain shielded by RON95 fuel subsidies.
“Year-to-date headline inflation, currently at 1.9%, has stayed below the official forecast of 2.1%. However, if the government proceeds with the rationalisation of RON95 subsidies during elevated oil prices, inflationary pressures could intensify,” he added.The country’s inflation in August 2024 moderated to 1.9% compared with a year earlier, slightly lower than forecast, according to the Statistics Department.
The CPI rose at a slightly lower rate than market expectations, which had predicted a 2% increase, according to a Reuters poll.
