Oil’s Outlook May Not Be as Bad as Feared

The oil market, range-bound for much of the past two months, feels ready for a holiday reset.

After a period of tumult in early autumn, volatility ebbed as direct fire between Iran and Israel eased off, and benchmark futures have been locked in a band of about $6.

OPEC+’s recent decision to push back a supply hike pretty much sealed December’s price inaction.

In the simplest terms, crude is caught between a market kept in check by managed supply and forecasts for a surplus next year. The International Energy Agency predicts a glut to the tune of 1.4 million barrels a day if OPEC+ sticks to current plans.

But it’s important to note, it’s pretty hard to find a trader with a more bearish view on oil than the IEA. Many believe things won’t be as bad as the agency suggests.

That’s down to a confluence of factors, including continued signs that OPEC+ will maintain a grip on output and a chance that production elsewhere — particularly in the US — may underperform.

Supply may well exceed demand, but the surplus could be smaller than expected, propping up prices that are currently around $73 a barrel.

“It appears to us the oil market is reviewing 2025 balances and becoming incrementally less bearish,” Macquarie Group analysts wrote this week. “If prices don’t break below $70 by the second quarter, the bear thesis will need to be revisited.”

Brazil is a touchpoint for the bulls. Instead of providing a deluge of supply this year — which it’s also forecast to do in 2025 — the country’s most recent figures show oil output down 7.8% from a year earlier.

Of course, production is surging in other places, Canada being one example.

It’s that push and pull that traders will wrestle with at the start of next year. No one expects a rampant bull market, but it might not be as bearish as first thought.

–Alex Longley, Bloomberg News