Investing.com -- Oil prices are shaping up to test new lows next year, Macquarie said, as the market appears to be pricing in a large crude surplus at a time when the demand outlook looks bleak.
"We expect oil prices to test new lows next year as geopolitical risk subsides and bearish fundamental factors take great weight," Macquarie said in a recent note.
Crude Oil WTI Futures settled 0.8% lower at $68.87 a barrel, inchomg closer toward its 52-week low of $65.27 a barrel.
Brent crude has settled into a $5 a barrel range over the last month as expectations for a large surplus balances in 2025, driven by weak demand growth of 1 million barrels per day and substantial global supply growth, have kept a lid on any potential upside.
Weak China demand is a big drag on the demand outlook as recent efforts by Beijing to boost growth have failed to impress.
Last week, Brent fell about $3/bbl as Chinese stimulus announcements disappointed, Macquarie said, adding that OPEC's forecast for weaker Q2 demand also weighed.
"China, the announced plan following the National People's Congress (NPC) meeting earlier this month was disappointing as the approval of a major fiscal package did not occur," Macquarie said.
The recent geopolitical tensions, particularly the Russia-Ukraine conflict, has helped to support oil prices. But the risk of an oil supply disruption from increased tensions is low, suggesting the support geopolitical-linked support is on borrowed time.