Crude oil outlook: WTI could be heading sub-$65

Crude oil prices were coming off their earlier highs, threatening to drop for the third consecutive day. Even before today’s selling of European indices, we had seen oil prices struggle near their recent lows. So, the selling is not solely because of risk aversion hitting other markets, even if the German DAX was down by over 300 points at the time of writing, owing to slumping German investor confidence amid political strife and threats of US tariffs on exports after Trump’s big win. Indeed, it looks like oil’s weakness has more to do with concerns about a weakening demand outlook and the potential for supply growth to accelerate in 2025. Against this backdrop, the crude oil outlook appears to be bearish in the near-term.

Supply concerns and reduced geopolitical risk premium

Not only are the OPEC expected to slowly bring back withheld supplies after repeated delays but drilling activity in the US could sharply increase as per Trump’s plans, which could translate into rising non-OPEC supplies in 2025 and beyond. What’s more, with Trump’s win, geopolitical risk premiums are being priced-out – as we have also seen with gold prices dropping. The rationale here is that Trump has promised to end the wars, and markets seem to have put their faith in him for being able to strike a peace deal in the Middle East and between Ukraine and Russia. Whether or not he will achieve these goals and how long it would take him remains to be seen. It looks like traders are selling oil now and will be asking questions later.

Demand concerns intensify for oil

Highlighting demand concerns, the OPEC has today cut its oil demand growth forecast again. This is the fourth month in a row that it has done so. Weak oil demand in China, the world’s largest oil consumer, remains the primary driver of falling prices. This has long been a concern and OPEC now envisages even lower demand growth from China. It has cut China’s demand growth outlook for oil from 580,000 barrels per day (bpd) to 450,000 bpd, while revising its 2024 growth forecast to 1.82 million bpd. This comes after China’s crude oil imports have fallen for the fifth consecutive month.

2025 recession fears cloud the crude oil outlook

Geopolitical risks are being priced out of markets, with traders betting on the resolution of global conflicts, reducing the odds of supply disruptions. However, oil markets are increasingly concerned about a potential 2025 recession. With recession odds on the rise according to Statista, a global downturn—especially with China’s weak demand and deflationary pressures—could heavily impact the crude oil outlook.

Technical crude oil outlook: WTI key levels to watch

Source: TradingView.com

Oil prices have fallen between 10 to 15 percent from their recent highs hit in October – just five weeks ago. While not at their lowest for this year yet, we are dangerously close to the May 2023 low of $63.60. So, what’s the technical crude oil outlook? Well, a potential breakdown below this level could be on the cards as signs of weakness in demand continue to emerge at a time when supplies could also increase. The lack of a significant recovery despite repeated bullish attempts suggests the downside pressure is building. The technical trigger for me would be a potential break below the $67.00-$68.00 support range, which was being test the time of writing. Resistance comes in between $69.30 to $70.00. The invalidation level for this bearish-looking technical setup is at $72.50, a pivotal level in recent weeks.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R