Goldman Sachs has forecasted a potential decline in Brent crude oil prices to $68 per barrel by late 2025 if China’s oil demand remains stagnant through the end of 2024. The bank’s projection reflects concerns about the slowing economic momentum in China, which is a significant driver of global oil demand.
China’s Economic Slowdown and Impact on Oil Prices
As of Tuesday, Brent futures were trading at approximately $77 per barrel, while U.S. West Texas Intermediate (WTI) crude was around $74.16. Goldman Sachs analysts, however, have pointed out that the risks to their previously anticipated $75-90 range for Brent in 2025 are now skewed to the downside, largely due to weaker-than-expected demand from China.
Recent data has underscored the challenges facing the Chinese economy. In July, new home prices in China fell at the fastest rate in nine years, industrial output slowed, and unemployment rates rose. These indicators suggest a broader economic slowdown that could suppress energy demand, particularly for crude oil.
Chinese refineries have already responded to the weakening demand by sharply cutting crude processing rates last month. Goldman Sachs attributes much of this slowdown to the shift from oil to alternative energy sources, such as electricity and liquefied natural gas (LNG), especially in the transportation sector.
Projections and Broader Market Implications
Goldman Sachs has revised its estimates for China’s oil demand growth, predicting a significant slowdown in year-over-year growth to just 0.2 million barrels per day in the first half of 2024, with a potential decline in demand during the summer. This outlook is in line with the recent actions of the Organization of the Petroleum Exporting Countries (OPEC), which also reduced its oil demand growth forecast for 2024 and 2025, citing similar concerns about China’s economic softness.
The broader implications of a sustained drop in Chinese demand could extend beyond oil markets, potentially affecting global economic stability. China’s economic performance has long been a cornerstone of global growth, and a prolonged slowdown could have ripple effects across various industries, including energy, manufacturing, and commodities.
Looking Ahead: Uncertain Future for Oil Markets
As the world’s second-largest economy, China’s influence on global oil prices cannot be overstated. The shift in its energy consumption patterns, driven by a combination of economic factors and a move toward greener energy sources, presents a significant challenge for traditional oil producers and markets.
Goldman Sachs’ projection of a potential decline to $68 per barrel for Brent oil highlights the uncertainty surrounding future demand. While some of this could be mitigated by changes in global economic conditions or geopolitical developments, the outlook remains cautious.
As traders and investors monitor these developments, the focus will likely remain on China’s economic indicators and their impact on global oil demand. The potential for further downside in oil prices underscores the need for adaptability in energy markets, as well as the importance of understanding the evolving dynamics of global demand.
Source: Reuters
