Experts' Outlook on Oil Market is Bearish

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What a difference a day (or a week) made, but not in a good way, for the oil market.

During this recent period, oil prices roller-coasted, supply issues deepened and the U.S. government predicted weakened oil demand at least through 2026.

"The short-term outlook remains bearish with investors wary of taking any new positions," wrote Michael Kern, OilPrice newswriter and editor, on April 8.

Oil Market Destabilized

After seesawing since April 2, the U.S. West Texas Intermediate (WTI) and Brent crude futures prices landed about 15% and 13% lower, at about US$60 and US$66 per barrel (US$60 and US$66/bbl), respectively, as of the end of day Thursday. Key drivers of the descents included volatile global trade policy, roiled by U.S.-imposed tariffs and the subsequent retrenchment of sorts, as well as escalating trade tensions between the U.S. and China, Reuters reported on April 10.

Another contributor was OPEC+ announcing an increase in oil volumes, to which the Saudis responded by cutting prices, according to an April 7 Seeking Alpha "Wall Street Breakfast" article.

"If history is any guide, we are far from the oil market's bottom," wrote Bloomberg Opinion columnist Javier Blas on April 7. 

Supply dynamics further destabilized the market. U.S. crude oil exports to China fell to 112,000 barrels per day (112 Mbbl/d) last month from 190 Mbbl/d a year earlier, reported Reuters.

Last week, crude inventories in the U.S. skyrocketed by about 2.6 million barrels (2.6 MMbbl), almost double analysts' 1.4 MMbbl estimate indicated in a Reuters poll, the news agency wrote. Another stockpile increase is expected this week. With persisting higher tariffs against China, Beijing likely will reduce crude imports from the U.S., thereby backing up supply and raising U.S. storage levels, Ritterbusch & Associates, energy research firm, told clients Thursday, Reuters reported.

Also, two days ago, the Keystone Pipeline was shut down due to a spill in North Dakota, and according to an April 8 Bloomberg article, there is no set time for restarting it.

"If history is any guide, we are far from the oil market's bottom," wrote Bloomberg Opinion columnist Javier Blas on April 7. "The situation is fluid and much depends on the next steps taken by the White House and the OPEC+ alliance."

Supply-Demand Needs Rebalancing

Blas opined that current oil demand forecasts of 1+ MMbbl/d in 2025 are steeper than are warranted. He predicted they would be reduced by somewhere between one-third and one-half.

Indeed, on April 7, the U.S. Energy Information Administration (EIA) lowered its global oil and fuel demand estimates by 102.7 million barrels (102.7 MMbbl) in 2025 and 100,000 barrels (100 Mbbl) in 2026, on the expectation that market uncertainty likely will cause dampened economic growth, which in turn would suppress demand. Based on diminishing demand and increasing supply, the EIA's new forecasts for the average Brent crude oil price are US$68 per barrel (US$68/bbl) in 2025 and US$61/bbl in 2026.

"The tariff-driven expectation of reduced demand amid the continued possibility of a U.S. recession will remain front and center of trader concerns is likely keeping a lid on near-term price gains," Blas quoted Ritterbusch & Associates as saying.

Simon Flowers, chief analyst at Wood Mackenzie consulting and research firm, expects mergers and acquisitions activity to pick up as large industry players capitalize on the downturn, wrote on April 10.

Supply and demand must rebalance, Blas wrote, much of which will fall on U.S. shale companies. Already, most are planning to cut spending, and some, last weekend, were warned by their lender they need to scale back on drilling right away to avoid violating their loan agreement. The WTI oil price must be at least US$65/bbl for U.S. oil exploration and production companies "to profitably drill a new well," many told the U.S. Federal Reserve Bank of Dallas last month. The average break-even price for profitability in the U.S. oil sector, Research firm Rystad Energy told Fortune, is an estimated US$62 per barrel.

"The impact of low prices on shale growth will probably be felt from June-August onwards," Blas wrote.

Simon Flowers, chief analyst at Wood Mackenzie consulting and research firm, expects mergers and acquisitions activity to pick up as large industry players capitalize on the downturn, wrote on April 10.

"U.S. majors can use high share price ratings to build portfolios further," he added. "National oil companies may look to diversify internationally. Euro majors, facing the steepest production declines next decade on our forecasts, will also look to seize the opportunity to strengthen portfolios for the 2030s."

More Price Instability Coming

Looking ahead at the market, and given worsening trade barriers and weakening global oil demand, the dominant theme remains uncertainty, "a dagger to price stability," Panmure Liberum Analyst Ashley Kelty told OilPrice. Uncertainty could cause oil prices to fall toward US$50/bbl.

According to Seeking Alpha, Goldman Sachs pointed out that the Brent oil price could plummet below US$40/bbl due to both an OPEC+ production boost and a U.S. trade policy-induced global economic slowdown.

An even bigger event, namely a U.S. attack on Iran, could cause the oil price to whiplash, purported Technical Analyst Clive Maund on April 10. Leading up to such an attack, Maund purported, the oil price could plummet to US$20–30/bbl. Post-attack, Iran likely would block the Straits of Hormuz, through which about 20% of the world's oil is transported. This would cause the oil price to reverse direction and skyrocket to US$150/bbl, resulting in a worldwide economic meltdown.

"This could all happen within the space of a few weeks or a month or two," Maund wrote.