Macquarie Group Ltd. forecasts that oil prices could soon drop to $60 per barrel — a level not seen since 2021 — due to a persistent oversupply in the market.

Earlier this month, Brent crude futures fell to a three-year low of around $68 per barrel. The decline was driven by deteriorating global economic prospects and growing concerns over weakening oil demand, especially as oil production is expected to outpace consumption significantly.

Mid-January brought a shift in the market as crude prices briefly climbed back above $80 per barrel, triggered by the implementation of sweeping U.S. sanctions against Russia, which fueled a short-term rally in oil prices.

“We remain skeptical, though understandably less so than we were at $80,” said Vikas Dwivedi, Global Oil & Gas Strategist at Macquarie. “Our price targets focus on what levels are sustainable, and for us, that’s the low $60s.”

Global Demand Under Pressure Amid Supply Rebound

Oil demand is also under pressure from the escalation of the global trade war, while OPEC+ continues to restore production levels. The International Energy Agency (IEA) warned this month that these dynamics could deepen the supply glut. Meanwhile, Goldman Sachs Group Inc. (NYSE: GS) is among several major financial institutions that have recently lowered their oil price forecasts.

However, Dwivedi believes it’s unlikely crude prices will drop far below the $60 threshold. A sustained decline in prices would likely slow production growth in the U.S. and among OPEC and its allies, helping to prevent further downward pressure.

Refining Margins and Diesel Hit Hardest

Macquarie maintains a cautious outlook on refining margins, particularly for diesel. “Diesel is suffering the most amid the trade war environment,” Dwivedi noted. Still, he pointed to recent closures of Chinese refineries as a reminder that if refining capacity shrinks faster than oil demand, long-term prospects for refined products may look brighter.

“There aren’t many new refining projects coming online next year,” he added. “So as long as demand doesn’t collapse, the market could move toward a more balanced state.”