OCBC Asean economist Jonathan Ng
PETALING JAYA: Analysts and economists are projecting lower global oil prices due to oversupply and the rapid adoption of electric vehicles (EVs).
The Organisation of the Petroleum Exporting Countries and its allies’ (Opec+) producers have plans to increase the production of crude oil come April, which could put downward pressure on oil prices.
At the same time, the demand for EVs has been on a rapid expansion with sales picking up at a fast pace, thus affecting the demand for fuel.
Economists and analysts expect the price of Brent crude to average between US$65 and US$77 per barrel (bbl) this year.
OCBC Asean economist Jonathan Ng expects global oil prices to continue moderating, with Brent averaging US$77 per bbl, down from its 2024 forecast of US$80 per bbl as the anticipated buildup in global oil inventories would curtail any upward pressure on oil prices.
He said US economic growth has been remarkably resilient in 2024, aided by the pivot to a global monetary policy easing cycle in the second half of last year (2H24).
“We expect the US economy to grow by 2.8% year-on-year (y-o-y) in 2024. Looking ahead, we anticipate that economic growth will remain stable at around 2% in 2025. To that end, we expect US oil demand to hold steady next year.
“However, the concerns lie with China’s oil demand. China has accounted for about 40% of global oil demand growth over the last two decades and has established itself as a key engine of this growth.
“An uneven economic recovery in 2024 has weighed on the country’s oil demand. Looking ahead, China’s economic recovery will inevitably be impacted by growing headwinds.
“We expect economic growth to ease further to 4.8% in 2025, down from our forecast of 4.9% in 2024,” Ng told StarBiz.
Meanwhile, he said the domestic automobile landscape has seen a relatively high EV penetration.
Taken together, he said these factors suggest that China’s oil demand may disappoint and could likely weigh on the outlook for global oil demand growth in 2025, he noted.
On the supply side, he said supply would be ample to meet demand in 2025, driven by non-Opec+ production growth.
With global oil demand growth expected to remain sluggish and the prospect of a supply glut in 2025, he said that an extension of Opec+’s existing production cuts is needed to support the oil market.
To that end, Ng said the group has announced an extension to its existing cuts.
“On the geopolitical front, geopolitical risks have largely diminished since the onset of the Israel-Hamas conflict in late 2023.
“This year, we anticipate that volatility will remain subdued due to the available spare crude oil capacity from Opec.
“In the event of a supply disruption, there is a considerable amount of capacity available to cushion the impact. However, there is a concentration risk, as most of this capacity lies in the Persian Gulf, which must be accessed through the Strait of Hormuz.
“With President-elect Donald Trump’s inauguration on Jan 20, the implications of a second term for Trump as president remain mixed at this point,” he said.
On one hand, he said it might see a return to tougher enforcement of US oil-related sanctions which should support oil prices.
On the other hand, Ng said Trump has a strong track record of supporting US oil production, which could serve as a countervailing factor. An increase in domestic oil production would likely depress oil prices, he noted.
“However, the risk is that oil producers might not respond as anticipated unless higher output translates into greater profitability and shareholder returns.
“Additionally, the uncertainty surrounding tariffs under a Trump 2.0 administration cannot be overlooked.
“The impact of these tariffs would likely weigh on global growth and commodity demand, which would negatively affect oil prices,” Ng said.
As at press time, the international benchmark Brent crude was up by 0.3% to US$76.16.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, who has projected Brent crude to hover between US$70 and US$75 per bbl this year, said among the main reasons for the weaker crude oil price would be the rapid pace of EV sales globally, which would impact demand for crude oil.
“Not to mention the move towards a greener economy that would see the proliferation of solar panel, hydrogen, wind and waste-to-energy that would effectively reduce fossil fuel reliance.
“Nonetheless, the concern over geopolitical risks in the Middle East could intermittently result in volatility in the crude oil prices,” he said.
Mohd Afzanizam said the government needs to ensure the transition towards EV has to be implemented effectively.
The policies should be holistic enough that cover the infrastructure such as the availability of charging stations in order to avoid the range anxiety among the EV users, he added.
Maybank Investment Bank expects Brent crude oil prices to be volatile and weaker at an average US$70 per bbl in 2025 (2024 estimate US$80 per bbl) as oil markets may turn into a supply surplus position on Opec+ possibly unwinding its production cuts. It said Opec+ producers may execute their plan to increase output by 2.2 million barrels per day over an 18-month period, starting in April 2025.
This could lead to an inventory build-up this year and put downward pressure on oil prices.
“Currently, Opec+’s output cuts of 5.86 million barrels per day represent about 6% of global demand, under agreements made since 2022.
“With that, the bank expects crude oil prices to be weaker y-o-y at US$70 per bbl for Brent this year,” the bank added.
MARC Ratings Bhd projects Brent oil prices to range between US$65 per bbl and US$75 per bbl this year.
However, it said this projection is subject to upside risks, including a potential escalation of geopolitical conflicts involving key oil suppliers, stronger-than-expected economic performance in the United States and China, and the extension of production cuts by Opec.
The rating agency said despite Opec+ production cuts, slow demand growth and diminishing geopolitical risk premiums have kept Brent oil prices below US$80 per bbl since the third quarter ended Sept 30, 2024 (3Q24).
Heading into 2025, it said oil prices are expected to be weaker compared to those in 2024.
MARC Ratings forecasts that oil prices in 2025 will likely range between US$65 per bbl and US$75 per bbl, while the oil price in 2024 is expected to average around US$80 per bbl, in line with the low end of its forecast range, MARC said.
On whether the movement of oil prices will have any economic repercussions on Malaysia, Mohd Afzanizam said: “The country has been net crude oil importer in 2022 and 2023 with trade deficits of RM21.1bil and RM32.2bil respectively, while in the first eleven months of 2024, the trade deficit in crude oil stood at RM35.3bil.
“At the current juncture, the prevailing crude oil prices have not altered the consumption of oil, as the country still predominantly relies on internal combustion engines as the power train for our vehicles in Malaysia. It certainly could worsen the trade deficits should crude oil price increase as it will result in a higher import bill for crude oil.”
