BofA latest to cut oil price view on weak demand, limiting OPEC’s ability to boost output

Crude oil futures gave up early gains and finished sharply lower Friday, as the monthly employment report raised concerns about the strength of the U.S. economy, while Saudi Aramco’s decision to lower its October official selling prices implied expectations of weak Asian demand.

Oil prices gained initially after the disappointing U.S. jobs data, which reinforced hopes for a Federal Reserve interest rate cut that could stimulate economic growth, but the report also intensified concerns over oil demand.

For a second straight session, the OPEC+ decision to delay its planned production hikes failed to impress the oil market, as the group failed to address broader concerns about demand – “there is no room for additional OPEC+ barrels in 2025,” DNB Markets senior energy analyst Helge Andre Martinsen said.

“Markets appear to be underwhelmed with the move,” ING analysts said, as reported by Dow Jones. “The issue is that the oil balance is in surplus over 2025, suggesting that prices are likely to remain under pressure without OPEC+ taking longer term action.”

“We’re seeing some hedge fund quantitative selling here as we’re coming into the Fed decision,” Dennis Kissler of BOK Financial said, according to Dow Jones, adding the jobs numbers were mixed but a Fed rate cut this month already was priced in.

“We’re concerned about a weakening economy in Asia and now it looks like the U.S. is beginning to slow down a little as well,” Kissler said. “It’s not that we’re seeing a lot weaker economy in the U.S., but I think the market is anticipating less demand as we come into year end.”

Front-month Nymex crude (CL1:COM) for October delivery finished -2.1% on Friday to $67.67/bbl, its lowest close since June 12, 2023, and front-month November Brent (CO1:COM) ended -2.2% on Friday to $71.06/bbl, its worst settlement value since December 3, 2021.

For the full week, WTI and Brent were down 8% and 7.6%, respectively, for their largest one week dollar and percentage declines since the week ending October 6, 2023.

Front-month October Nymex RBOB gasoline (XB1:COM) closed -1.5% on Friday to $1.896/gal, its worst settlement since February 26, 2021, and front-month October Nymex heating oil (HO1:COM) was -2.5% on Friday to $2.115/gal, lowest since December 3, 2021; for the week, the benchmarks fell 9.4% and 7.1%, respectively.

However, U.S. natural gas futures snapped a three-week losing streak, with the front-month October Nymex contract (NG1:COM) finishing +0.9% on Friday and up 6.9% on the week at $2.275/MMBtu, lifted by growth in liquefied natural gas exports and a lower than forecast inventory buildup.

ETFs: (USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

Bank of America analysts downgraded their 2025 Brent price forecast by $5 to $75/bbl, citing weaker demand, particularly from China, and significant inventory builds.

Subdued Y/Y global oil demand growth of 1.1M bbl/day in 2025 combined with a non-OPEC oil supply increase of nearly 1.6M bbl/day will limit OPEC+’s ability to raise production, according to BofA.

Even with OPEC’s plans now on hold, the market should tip into a 730K bbl/day surplus in 2025, pressuring prices lower, the bank said.

The reduced forecast also caused BofA to lower its 2025 earnings estimates for oil and gas majors by 6% on average for oil and gas majors, “putting an increased premium on superior resilience.”

Energy (NYSEARCA:XLE), as represented by the Energy Select Sector SPDR Fund ETF, finished the four-day week -5.7%.

Top 5 gainers in energy and natural resources in the past 5 days: Sable Offshore (SOC) +32.4%, Empresa Distribuidora y Comercializadora (EDN) +14.7%, Braskem (BAK) +9.1%, MP Materials (MP) +7.8%, Transportadora de Gas del Sur (TGS) +7.7%.

Top 20 decliners in energy and natural resources in the past 5 days: Nano Nuclear Energy (NNE) -34.8%, Ramaco Resources (METC) -25.3%, Vital Energy (VTLE) -23.3%, Eos Energy Enterprises (EOSE) -21.6%, Battalion Oil (BATL) -20.7%, Obsidian Energy (OBE) -20.1%, Piedmont Lithium (PLL) -19.8%, Alpha Metallurgical Resources (AMR) -17.7%, Indonesia Energy (INDO) -17.4%, Kosmos Energy (KOS) -17.3%, First Majestic Silver (AG) -17.1%, Nabors Industries (NBR) -17%, Hallador Energy (HNRG) -17%, Vaalco Energy (EGY) -16.9%, Bloom Energy (BE) -16.4%, Baytex Energy (BTE) -16.3%, KLX Energy Services (KLXE) -16.3%, Sigma Lithium (SGML) -16.2%, Uranium Energy (UEC) -16.1%, Albemarle (ALB) -16.1%.

Source: Barchart.com