Pessimistic oil market forecasts are emerging endlessly, OPEC is struggling, and the biggest beneficiary is the central bank?

If some of the most pessimistic oil market forecasts come true, the developed economies around the world may have a more solid growth foundation next year. On Tuesday, the global benchmark Brent crude oil price fell below $70 per barrel for the first time since the end of 2021, indicating that a key factor driving the energy shock that triggered the most severe inflation crisis in a generation has been mild enough to allow policymakers to cut interest rates. However, forecasters from institutions such as Citigroup and JPMorgan have suggested that Brent crude oil prices could fall to $60 per barrel by 2025, with one of the world's largest commodity traders expressing a similar view on Monday. This could further strengthen the ability of the United States and its peers to withstand the impact of high borrowing costs without falling into a severe recession. "The likelihood of achieving a soft landing will increase—this applies to both Europe and the United States," said former UK Treasury official Tim Drayson. "Overall, this will be beneficial for lowering global interest rates and helping central banks return to neutrality." For central banks that are about to cut interest rates this month, the recent drop in oil prices has opened a wider door for loose policies. The market expects European Central Bank officials to announce a second rate cut on Thursday, while the Federal Reserve is expected to start its own easing cycle in less than a week. For investors and decision-makers who believe that oil prices will drop to $60, this could further suppress overall inflation rates and bring an increase in disposable income for consumers. In a risky world, this is a rare bright spot. "This is very helpful for central banks," said Christof Ruehl, senior analyst at the Center on Global Energy Policy at Columbia University. "It eases inflation pressures, which is exactly what central banks need right now." Adjusted for inflation, oil prices are currently at levels from 20 years ago. Analysts from JPMorgan and Citigroup expect oil prices to fall further next year as weak demand growth is overwhelmed by a large amount of new supply. On Monday, at the Asia Pacific Petroleum Conference in Singapore, Ben Luckock, global head of oil at Trafigura, said that Brent crude oil "could soon fall into the $60 range". Another major trader, Gunvor Group Ltd., warned that the oil market will "deteriorate". Despite signs of weakness in the U.S. economy, the oil industry continues to maintain good health. According to data from the International Energy Agency (IEA), global oil production will increase by 1.5 million barrels per day this year and next, mainly from U.S. shale fields, exceeding global demand growth by about 50%. This surge in supply is one of the reasons why oil prices continue to fall despite OPEC+ extending production cuts. The importance of crude oil to global consumer prices means that the rapid drop in oil prices to $60 per barrel (down about $20 since July) would have a significant impact on inflation The SHOK model developed by foreign media indicates that such a significant immediate decline will reduce the inflation rates in the United States and Europe by 0.4 percentage points at the end of 2024 and the beginning of 2025. The immediate stimulating effect on economic growth may be more moderate than its impact on consumer prices. With a $60 oil price, the SHOK model predicts that the growth prospects in the United States will not change significantly, while the growth in the UK and the Eurozone will increase by 0.2 percentage points. Hetal Mehta, the Director of Economic Research at St James Place and former UK government economist, stated, "You will see the short-term impact of oil prices on overall inflation, which will quickly become apparent. If inflation is low, the impact on growth should be moderate." Drayson mentioned that households will notice this difference. "A decrease in oil prices will have a positive impact on consumers in developed markets, which will help curb inflation and increase real income," he said. The European Central Bank, which will be the first major central bank to face the ever-changing oil situation, will meet on Thursday. Its officials are most concerned about the risks posed by service sector inflation, which remains more than twice their 2% target, but risks to growth are also emerging. Cheaper crude oil has already affected their quarterly forecasts used for guidance. In June, officials assumed an oil price of $78 per barrel for 2025 - indicating that if oil prices do fall to $60, it would have a significant negative impact on their inflation outlook. Meanwhile, in the United States, Treasury Secretary Yellen stated last Saturday that the current situation is "what most people call a soft landing," but there are concerns about deteriorating economic conditions and reduced inflation risks. Freya Beamish, Chief Economist at TS Lombard, has already seen the possibility of the United States achieving a "soft landing," stating that the lower the crude oil price, the greater the stimulus to the U.S. economy, which is reassuring. In an interview, she said: "This will return purchasing power to American consumers, helping to alleviate some of the fractures in the U.S. economy."