IMF sees ‘balanced’ risk to oil prices over the next two year
Oil prices this year are set to face both upside and downside challenges, the US-headquartered financial agency said in its April World Economic Outlook (WEO).
PHOTO: The IMF headquarter in Washington, D.C., US. Getty Images
A broader geopolitical spillover of the Middle East conflict with direct involvement from Iran, coupled with attacks on Russian oil infrastructure and the extension of OPEC+ supply cuts, could lead to a 15% surge in global oil prices in 2024 and 2025, before prices return to a baseline level in 2026, the International Monetary Fund (IMF) projected.
Front-month ICE Brent crude futures broke above the price mark of $90/bbl earlier this month on the back of tightening fundamentals and geopolitical risk premiums.
On the flip side, potential downside pressure on oil prices could arise from a slowdown in Chinese oil demand growth. The country’s daily crude oil imports in March were about 11.55 million b/d, down around 6% from 12.32 million b/d imports during the same time in 2023.
The news has heightened worries about a potential slowdown in demand growth from one of the top global crude oil importers, raising concerns that the Brent futures rally may weaken. The outlook for demand growth is highly uncertain," stated the IMF, underscoring the unpredictability surrounding future demand trends.
On the supply side, strong non-OPEC supply growth, led by the US, Brazil, and Guyana and “possibly coupled with a rise in OPEC+ oil supply to regain market share,” could add further downward pressure on oil prices, IMF said.
“Oil prices will slide by 2.5 percent year over year to average $78.60 per barrel in 2024 and will continue to fall to $67.50 in 2029,” in such a scenario, it added.
Global world economy outlook
The agency that represents 190 member countries projects global GDP growth of 3.2% for 2024 and 2025, about 0.2% higher than GDP growth in 2023.
The IMF highlighted that increased shipping and freight expenses resulting from Middle East tensions could elevate global inflation by approximately 0.7 percentage points. The agency anticipates a decrease in global headline inflation from 4% in 2023 to 2.8% by the end of this current year and further down to 2.4% in 2025.
"The global economy continues to display remarkable resilience with growth holding steady and inflation declining, but many challenges still lie ahead," IMF’s chief economist Pierre-Olivier Gourinchas said.
By Aparupa Mazumder
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