Oil prices are likely to fall back into the $70s after gaining strength recently on the back of optimism over demand and economic prospects, according to Julius Baer.


So far this month, oil has rallied, with prices surging more than $85 a barrel. 
 

“Oil demand indeed looks stronger this year, but given China’s property challenges and the United States’ still tight labour market, we struggle to see a meaningful fundamental upside,” wrote Norbert Rücker, Head Economics and Next Generation Research, Julius Baer, in a note.

“Today’s bullishness should eventually reverse. We see oil prices trending back into the $70s.”

Some analysts have recently revised their forecasts on oil demand growth as market sentiments turned upbeat, projecting that supply could be tight later this year.

Just this week, EIA increased its forecast prices for crude oil and petroleum products for the remainder of the year, following the extension of OPEC+ output cuts. It said that, with the production cuts, oil supply will be “significantly less” than oil consumption through the first half of 2024.

Oil consumption is dominated by China, North America and Europe.

Rücker said that last year’s strong demand in China isn’t likely to continue in 2024. He noted that the Chinese property market is facing some challenges that weigh on construction activity.

Besides, the rapid shift to electric vehicles is leading to lesser consumption of road fuel.

“China’s crude oil imports trend sideways at elevated levels, with substantial quantities of oil entering storage or being re-exported as fuel or other products,” Rücker noted.

“Under such preconditions, China’s crude oil buying is likely to become more opportunistic and price sensitive.”

In the US, the upside to road fuel consumption seems somewhat limited, given that conditions in the labour market have remained tight, while in Europe, the market is showing “structurally softer demand.”

“Oil prices should trend lower once the present upbeat mood cools,” Rücker said.

(Writing by Cleofe Maceda; editing by Seban Scaria) 
seban.scaria@lseg.com