Oil expected to hover above $80 in 2024
Crude oil futures recorded a loss of more than 10% in 2023
In the intricate landscape of the global oil market, 2024 is poised to present significant challenges and shifts. Analysts anticipate sluggish oil demand growth due to expected weak global economic growth and increased supply from non-OPEC producers. Despite OPEC and its allies implementing output cuts of approximately six million barrels per day, representing about six percent of global supply, the market is likely to face an oversupply situation in the first half of 2024.
According to S&P Global Commodity Insights, the supply-demand balances project stock builds in the initial months of 2024, with a potential deficit only emerging by Q3. In the base case scenario, oil prices are expected to hover above $80 per barrel, possibly inching closer to $90 per barrel by the third quarter of 2024.
A Reuters poll involving 34 analysts and economists indicates that WTI crude is anticipated to average $78.84 per barrel in 2024. Similarly, Brent Crude prices are expected to average $82.56 per barrel for the year, slightly down from the November consensus forecast of $84.43 per barrel.
The year 2023 witnessed a significant drop in oil prices, despite geopolitical conflicts such as the Israel-Hamas war. Crude oil futures reported a loss of over 10 percent, marking the most substantial annual drop since 2020. The latest conflict in October 2023 briefly lifted oil prices, but the gains were short-lived, with prices surrendering all gains within a month.
Market analysts attribute the resilience of oil prices to the rising non-OPEC+ oil supply, which counteracts the impact of production cuts and geopolitical risks. The geopolitical landscape has seen heightened tensions, including Iran sending a warship to the Red Sea. While geopolitical concerns persist, analysts suggest a relatively comfortable oil balance in the first half of 2024 may alleviate some market worries.
Market experts are cautious about expecting a significant rise in oil prices from current levels, barring a major escalation of tensions in key regions such as the Red Sea and the Strait of Hormuz.
The dynamics within OPEC are undergoing changes, with Angola’s exit effective January 2024. This departure, following in the footsteps of Ecuador in 2020 and Qatar in 2019, is set to impact OPEC’s crude oil production and highlights broader challenges for the organization. Despite these challenges, some OPEC+ countries plan to counter seasonal weakness in oil demand by producing about 900,000 barrels per day less in the first quarter of 2024.
Saudi Arabia, a key player in OPEC+, intends to prolong its unilateral cut of one million barrels per day through the first quarter of 2024, maintaining current oil production levels. Additionally, Brazil is expected to join the alliance in January 2024, a move seen as preserving the unity of the group amid challenges.
Russia has announced a voluntary cut of an additional 200,000 barrels per day, bringing its total reduction to 500,000 barrels per day in Q1 2024. This reduction includes both crude oil and refined products.
Kurt Barrow, the head of Oil Markets at S&P Global Commodity Insights, emphasized the impact of strong non-OPEC+ supply growth and slowing oil demand growth, which led OPEC and its allies to curtail output and support prices. However, maintaining discipline among member countries may prove challenging in 2024 as market share losses continue and non-OPEC+ volumes increase.
The upcoming OPEC+ meeting on February 1 is deemed critical for the oil market. Ongoing collaboration among OPEC+ members, despite recent changes like Angola’s departure, signals a controlled approach to oil supply management.
In conclusion, the global oil market in 2024 is expected to navigate through challenges stemming from economic factors, geopolitical tensions, and the evolving dynamics within OPEC and its allies. The decisions made in the upcoming meetings and the ability of OPEC+ to adhere to voluntary production cuts will be pivotal in determining the trajectory of crude pricing throughout the year.
