Oil prices could be in the $60s next year: Strategist

Oil (BZ=F, CL=F) prices are in the spotlight as they continue to rise, despite growing demand uncertainty. Citi's Global Energy Strategist Eric Lee joins Catalysts to provide his perspicacious outlook.

As the latter half of the year approaches, Lee foresees "markets getting a lot weightier" due to the intricate supply and demand dynamics. However, he cites geopolitical factors and weather patterns are what's "keeping the market nervous." Nonetheless, two factors could potentially alleviate this nervousness: slowing US gasoline demand and the fact that "profitability is problematic" within refineries.

Turning his attention to the trajectory of future oil prices, Lee told Yahoo Finance: "We essentially think fundamentals, supply and demand, and global inventories will be building a lot next year." He added a cautionary note, stating, "I think when the markets see that, that is bearish for the price, and it [oil] can decouple from other sectors."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith.

Video transcript

Now, despite oil prices and nearing their highest level this month, our next guest saying that 2025 could bring a different story.

Let's talk about that outlook and what we could expect that price action to look like We wanna bring in Eric Lee, he city's global energy strategist, joining us now.

Eric, it's great to see you.

Thanks so much for coming in.

So let's talk about what we are seeing in the price of oil because lots of confusion, I guess.

Lots of questions, I should say.

Uncertainty regarding supply and demand, how exactly that is going to stock up and ultimately the impact that's going to have on prices here in the long run.

How do you see that playing out?

Yeah, absolutely.

I mean again.

You know, we do think that there is a bit of a tight stretch through the summer, so we do see prices staying in the low to mid eighties for a little longer.

But as we're looking through the second half of the year into 2025 we really see markets getting a lot weightier.

And a big part of that is supply and demand, and one part of that is the recent meeting.

I mean, they guided for the prospect of adding 2.5 million barrels a day to the market over a year starting October.

Now we actually don't think they'll end up doing that because we don't think there's actually enough room for them to bring these barrels back to the market.

That's a big part of our 2025 view.

How much could the run up between now and the election in November potentially be a headwind for that view?

Or do you think whatever happens between now and November has plenty of time to be undone?

Heading into 2025?

Yeah, we are essentially looking for a top for this market in the middle of this year and this summer, so there's a lot of reasons to be cautiously bullish this summer.

Geopolitics, weather, hurricane season, wildfires, high heat.

So there's a lot of things that are keeping the market nervous.

However, one thing that is that could offset, that is, we are not seeing such strong gasoline demand summer driving season, including in the US, which is typically been one of the strongest places, and the second one we know is that refineries are also signalling that profitability is problematic right now, so margins aren't that strong.

Refineries are talking about reducing how much they're running, and they're the ones that use the crude oil to make into gasoline and diesel and other products.

So, Eric, when you talk about maybe that more bearish dance or bearish outlook as we look ahead to 2025 how much pressure do you expect to see on prices when it comes to Brent and Crude?

We are looking for a sixties next year, so we haven't seen that for a while, You know, this summer, still in the low eighties.

But we think we're moving into the seventies for Brent for the second half of the years and sixties next year.

So significant downside versus now, Significant downside versus the futures curve.

I'm curious.

Then we have this kind of global risk on sentiment that Anne was talking about.

How do you get to 60 without the market turning that risk completely off?

Yeah, I mean, I think it is actually a disconnecting of the oil market from a lot of other risk asset sectors and even growth itself so we essentially think fundamentals, supply and demand and global inventories ultimately will be building a lot next year.

In our base case, we have 1.4 million barrels global oil stock building next year after a roughly balanced market this year.

So I think when the market sees that that is bearish for the price and it can decouple from other sectors and particularly growth.

One very key issue for next year is that oil demand will continue.

Oil demand growth will continue to slow down and that's part of the electric vehicle energy transition story.

And really, as we see oil demand, decouple from growth can continue to grow.

Oil demand can grow at a slower and slower rate relative to and in fact peak before the end of this decade.