Amid easing global monetary policy and intensifying geopolitical tensions, Morningstar DBRS is boosting its oil price forecast for the year ahead.
In a new report, the rating agency increased its forecast for West Texas Intermediate oil prices in 2025 to US$65 per barrel, up from its previous call of US$60 per barrel, citing the “more favourable” picture for global oil supply and demand, and a higher risk premium driven by ongoing conflicts in Ukraine and the Middle East.
“The ongoing Russia-Ukraine and Israel-Hamas wars — including continued attacks by Houthi rebels against commercial ships in the Red Sea and direct confrontations between Israel and Iran — could lead to a meaningful disruption of oil supply, potentially causing oil prices to surge,” the report said.
With oil shipments continuing to be rerouted away from the Red Sea, DBRS said, “The impact on energy trade flows and the threat of a broader conflict in the Middle East is adding a risk premium to the current price of oil and could result in a material oil supply disruption.”
The heightened risk premium, coupled with easing global monetary policy, which should boost demand, is expected to underpin crude oil prices through mid-2025, the report noted.
“[R]ecent interest-rate cuts by the U.S. Federal Reserve, European Central Bank and several other developed-market central banks, plus the prospect of further cuts should help to support global economic activity and, therefore, oil demand in 2025,” the report said. Further, monetary stimulus from the People’s Bank of China should help maintain growth in China, which is the world’s second-largest consumer of oil.
“Elsewhere, oil demand should benefit from a resuscitation of growth in Japan and continued strong economic growth in India,” it said. “Overall, global economic growth is expected to modestly improve in 2025 relative to 2024.”
Alongside the revised forecast for 2025, DBRS introduced its oil price forecast for 2027, when it expects prices to average US$60 per barrel. Its forecast for 2026 remained unchanged at US$60 per barrel too.
Similarly, the firm’s forecasts for natural gas prices remained unchanged.
In that sector, DBRS expects “the U.S. supply/demand balance to gradually tighten as low natural gas prices continue to discourage new production and, simultaneously, incentivize new demand through 2025.”