Energy Update 2025: Oil Price Outlook, Inflation Links & Petro-Dollar Shifts

Recent Oil Market Forecasts Publicised

The financial press and news headlines have generally been reiterating a message of further declines in oil prices of late, potentially to trade in a new $55/bbl to $55/bbl range within weeks according to one prominent ‘Wall Street Refiner’ (a merchant bank with access to equity assets, generally refining). It was not just the investment banks anticipating price falls for in October the Paris-based International Energy Agency also weighed in with similarly bearish oil price predictions.

Without delving deeply into the numbers, taking a step back two facts warrant consideration here. First, oil prices have and will correlate closely with global inflation rates. This proven correlation has been proven to be especially reliable over the long-term 5 to 15 years out. The axiom was identified back in 1957 by Purvin & Gertz and the link between dollar and oil prices has stood the test of time since. In commodities’ markets circles oil is referred to as ‘the poor man’s gold’ for this reason. Second, macro-economic demographics, a topic which is becoming ever more important. Petro-dollar prices today have already halved since the June 2022 high of £119/bbl . If the short-lived episode of negative oil spot prices and NYMEX recorded low of £17/bbl during the covid-19 market chaos is put to one side then today’s oil prices in petro-dollar inflation-adjusted terms are already trading near the lowest prices level on record. Notwithstanding this, the current oil pricing and macro-economic environment is simply unsustainable for Middle Eastern producers who, almost without exception have to cater for sharply-growing populations and the rise in domestic oil, gas and electricity consumption that this will entail.

The prospect of oil being increasingly traded outside the petro-dollar arena (so this time with a direct inter-play with the bullion market with gold used to net-out trading imbalances outside the dollar space, making gold an operative ‘reserve currency’ of sorts ) is then a third question and equally relevant question. This question of oil ceasing to be traded exclusively in dollars was discussed in separate posts earlier this year with further articles to follow. This analysis was posted n LinkedIn and can be viewed by typing dominic-whittome-energy into any Search Bar.

Even though Net oil output is considered, in the main the banks, the IEA and inter-governmental bodies tend to overly focus on the raw Gross Output figures. Even leaving the precise statistics to one side, the question of available future incremental capacity and its delivery cost is seldom highlighted in the graphics or in the detail needed.

Many such producing countries are increasingly relying on gas-fired power generation for spinning reserve, within-day balancing and risk-management. So potential export volumes of LNG could also be affected as well to some extent.

As discussed in the Midsummer Edition of Energy Highlights, also at play has been the willingness of Saudi Arabia to keep up its oil exports which has certainly kept a lid on oil prices, in effect helping the Trump administration curb rising prices and preclude the Federal Reserve having to raise interest rates. Should that be the case, then a somewhat delicate ‘geo-political monetary’ has been at play here and it seems to be paying off too, albeit just for the time being.