Crude oil at the crossroads: Brent risks $50 slide

20/10/2025 04:01 AST

Oil markets are bracing for a turbulent fourth quarter as Brent crude hovers near $61 a barrel and traders increasingly question whether prices can hold above the critical $55 floor - or collapse toward $50 if global demand softens.

Analysts warn that the delicate balance between Opec+ output growth and fading consumption could soon tip decisively, setting the tone for 2026's energy landscape.

Brent crude traded around $61.2 and West Texas Intermediate (WTI) near $57.5 last week, both benchmarks down nearly 15 per cent over the year as rising supply collides with uncertain demand. Bank of America (BofA) continues to defend its $55 price floor, arguing that steady Asian consumption and Opec+'s supply discipline will keep the market supported. Citigroup, however, sees a deeper slide ahead, projecting a possible drop to $50 if economic momentum and geopolitical risk premiums fade.

According to the International Energy Agency (IEA), global oil supply rose by about 760,000 barrels per day (bpd) in September to reach roughly 108 million bpd - its highest level since 2019. The IEA expects total supply growth of 3 million bpd in 2025 and another 2.4 million bpd in 2026, largely driven by non-Opec producers. Opec, meanwhile, forecasts global oil demand at 105.1 million bpd next year and 106.5 million bpd in 2026, implying annual growth of about 1.4 per cent.

The Opec+ coalition has just approved another modest output hike of 137,000 bpd for November, continuing a gradual rollback of voluntary cuts. Industry surveys show total Opec output rising to 28.4 million bpd in September, up 330,000 bpd from August. The group's combined output now exceeds 41 million bpd, with Saudi Arabia and Russia continuing to steer production strategy despite occasional friction.

The resulting oversupply is feeding market anxiety. The IEA recently warned that global inventories could balloon to record highs by 2026 unless demand accelerates. Brent prices have already shed nearly 6 per cent in the past month, weighed down by rising US shale production - now above 13.3 million bpd - and a surge in exports from Brazil and Guyana.

BofA maintains a more optimistic outlook, expecting Brent to average $61 in the final quarter of 2025 and climb to $64 in early 2026. The bank notes an unusual long-term contango in oil futures - where distant contracts trade about $4 higher than near-term ones - suggesting that traders expect oversupply in the medium term but tighter balances in the immediate horizon. "We see structural support at $55, but the market needs evidence of demand recovery to sustain a rebound," BofA said in a recent note.

Citigroup takes a sharper view. Senior strategist Eric Lee said the easing of geopolitical tensions in Eastern Europe and weaker Chinese data could "trigger a faster unwind toward $50 as speculative longs exit the market." Citi's team also warned that a stronger dollar and higher-for-longer US interest rates may further suppress commodity inflows.

An analyst at Energy Aspects echoed a more cautious stance: "Stocks at sea are rising, and refinery margins are under pressure. Unless Asian buying holds steady, Brent could retest its lower support zone." Vortexa data shows nearly 1.2 billion barrels of crude currently afloat - the highest since 2016 - reflecting logistical congestion and weaker refinery demand in the West.

Geopolitics adds another layer of volatility. China continues to import about 1.9 million bpd from Russia while replenishing its strategic reserves, helping absorb some of the surplus. However, renewed trade tensions between Washington and Beijing - including threats of new tariffs and technology restrictions - could undermine demand. India, too, remains a key wild card as it resists US pressure to curb Russian crude imports amid its fast-expanding refinery sector.

Technically, Brent is trapped between strong support at $55 and resistance around $63.50-$64. A weekly close below $55 could validate Citi's bearish call and set up a sharper correction, while a move above $64 would confirm BofA's stabilisation thesis. The 200-day moving average near $61 continues to act as a pivotal pivot point.

For now, analysts see consolidation rather than collapse. Energy equities are already pricing in Brent at around $58-$60, suggesting that most of the downside risk is factored in. Yet sentiment remains fragile. "This market is walking a tightrope - one wrong macro headline could tip it either way," said an analyst at RBC Capital Markets.

Market experts said oil prices are holding steady for now, but the market's grip on the $55 support is tenuous. "Without a clear pickup in demand or stronger Opec restraint, Brent could easily slide into the $50 range before year-end - a move that would reshape expectations for 2026 and test the resilience of global energy majors once again."