Oil prices taking a dip but should bounce off recent lows. Brent crude oil prices have fallen more than 15% since start of 3Q24 to recent lows of around USD70/bbl, compared to an average of USD85.0/bbl in 2Q24. The recent weakness was driven by rising demand risks, and the risk of a full-blown crisis in the Middle East has been averted so far. Iran and Israel have deployed limited strike options against each other, averting further damage on energy infrastructure. Meanwhile, negative demand trends from China, tepid demand in US and other developed economies and the spectre of looming production increase from OPEC+ have kept a lid on oil price trends. We have recently lowered our average base-case Brent crude oil price forecast to USD77-82/bbl in 2024 and USD70-75/bbl in 2025, from USD80-85/bbl and USD72-77/bbl earlier, given the prevailing demand risks. However, at USD70/bbl, oil prices look oversold and hence there is room for a bounce back.
A Trump win could boost US oil and gas share prices. The US Presidential race has been too close to call for some time. In the event of a Trump victory, we believe sentiment for US oil and gas stocks could see a near term uplift. Separately, US shale oil production is not as dependent on politics as much as market factors, with production increasing sharply under Biden’s administration. On the gas front, the ban on export terminals may be lifted and higher export volume should be beneficial for shale gas producers, both from a volume and price perspective. Diplomatic efforts behind the scenes have possibly reined in Israel’s attacks on Iran and reciprocal actions, ahead of the US elections. However, once the elections are over, the possibility of geopolitical risks resurfacing cannot be ruled out entirely as Israel remains on the offensive in the Gaza theatre as well as in Lebanon and Iran, with no signs of a ceasefire yet.
Oil and gas share prices have moderated since 2Q24, better entry points now. Overall, we believe market pessimism may be unwarranted at USD70/bbl oil levels. Recent stimulus measures rolled out by the Chinese government could mean a better 2025 for Chinese oil demand. In addition, OPEC+ retains the flexibility to stabilise markets and thus we expect reasonable support for oil prices in near term, with potential further Fed rate cuts and a weaker US dollar on the horizon. US oil and gas plays have since given off much of the gains for the year, down around 18% on average from the highs in April. Thus, current levels seem a safe bet to accumulate names like ExxonMobil, Chevron, ConocoPhillips or EOG Resources. We believe US oil majors and shale plays will continue to see upside from both organic and inorganic volume growth starting next year.
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