Brent has been range bound for several now between 70-80 levels. But we had a medium-term target of it testing 50. Our basic hypothesis still remains the same. We have a large demand evaporating from China due to EVs adoption on a large scale by Chinese consumers, a large supply waiting on the sidelines from OPEC+ & now a US president whose fascination with “drill baby drill” is known worldwide. We also believe that we might see a Russia Ukraine ceasefire soon brokered by US and delivered in Saudi Arabia. Add to the above, a higher for longer rate environment in US implying higher funding costs for speculators, a slowing global economy due to tariff tensions & we have the perfect mix for Brent testing 50 by end CY25. More than half the passenger cars sold in China are now electric or hybrids, shrinking the need for gasoline, which accounts for about a quarter of Chinese demand. Hence Chinese crude oil imports fell 1.9% to 553 million tons in CY24, the third decline this decade & the 1st decline in data going back to 2004 if we exclude covid years of 2021 & 2022. China’s sales of electric vehicles and hybrids have reached a tipping point. They’ve accounted for more than half of retail passenger vehicle sales in the four months from July'24. Many brokerage houses now see Chinese gasoline consumption dropping by 4% to 5% a year through 2030. Moving on to OPEC+, we believe that they might increase output from Q2 in line with what Trump wants. OPEC+ can’t resist the pressure forever from Trump. Technically, going ahead with the Q2 hikes wouldn’t equal capitulation. In addition, it helps them in regaining their market share back from US shale. We also believe that Trump is likely to broker a ceasefire deal between Russia & Ukraine aided by Saudi Arabia’s MBS. That implies withdrawal of sanctions on Russian oil and more supply. Current on off tariff news adversely impacts the global economy & trade. We expect tariff issues to further reduce global oil demand leading to further pressure on brent prices lower. Recent US inventory data showed stockpiles had climbed for a second consecutive week. Crude inventories rose by 8.66 million barrels in the week ending 31 January, significantly surpassing the estimated increase of one million barrels. This followed a build of 3.5 million barrels in the previous week, suggesting weakening demand. In summary, we are entering a lower for longer crude price environment driven by a large missing buyer, a large supply waiting to hit physical crude markets, tariff woes, a slowing global economy & a US president whose stated policy is lower oil prices.
