Analysts divided on oil price forecast as economic factors, U.S. output surge and OPEC’s declining influence take centre stage
What will the oil price trajectory be in the New Year?
While analysts are divided, one common consensus is emerging: The direction of the oil markets in 2024 will be influenced primarily by economic challenges, the transition towards cleaner energy sources, and the continued surge in U.S. oil production. Additionally, factors such as patterns in crude oil demand and the global economic conditions throughout the year will exert significant influence on market dynamics. Geopolitical developments also cannot be ignored.
The markets are being flooded with rising output from non-OPEC competitors. This surge in output includes record-breaking U.S. oil production as well as the rapid growth of production from other non-OPEC+ nations like Brazil, Guyana, Canada, and Norway. Consequently, OPEC today is no longer the sole arbiter of the supply side of the global crude equation.
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According to a U.S. Energy Information Administration (EIA) report, U.S. crude oil output reached an all-time high of 12.9 million barrels per day (bpd) on average in 2023. It is expected to hit another record average of 13.1 million bpd in 2024. This is huge. In contrast, the Saudi output today is roughly around nine million bpd.
U.S. output is posing a challenge for OPEC. “If the U.S. does continue to keep on producing more and more, the ability for OPEC to show more cuts may not be enough to balance the market,” says Jeremy McCrea, managing director of energy research firm Raymond James. For OPEC, this also means losing market share.
The ongoing Israel-Hamas war has not had much impact on oil markets, at least so far. Instead of going up, oil prices have been mostly falling during the conflict. But that may change. Yemen’s Houthi faction has attacked oil tankers in the Red Sea in solidarity with Palestinians. The attacks have caused shipping companies to reroute tankers and containerships on much longer journeys, forcing shipping rates higher and sending oil prices about eight percent higher. Should the attacks intensify and force more tankers to avoid the canal for a longer period, it could cause a more dramatic reaction in the oil market. And, if Iran gets more directly involved, it could certainly cause prices to rise by a double-digit percentage.
There is growing discontent with OPEC’s output reduction policy. Angola, an oil-producing nation in Africa, has already declared its intention to exit OPEC in order to pursue its own strategy. Some others could follow suit.
And although global recessionary fears have diminished and lower interest rates are expected in the upcoming year, markets are fretting over a likely drop in demand for crude, especially in China.
The Chinese economy is still experiencing only a gradual recovery, but its appetite for electric vehicles is growing so fast that Bloomberg recently reported that Chinese crude oil demand may touch its peak this year. Meanwhile, the U.S. Energy Information Agency (EIA) is forecasting the demand growth to slow down in 2024. EIA now sees it at barely 180,000 bpd, compared to some one million bpd in 2023.
However, the OPEC and the International Energy Agency (IEA) demand growth forecasts are considerably higher. OPEC expects the demand growth in 2024 to be 2.2 million bpd, while the IEA, sees the oil demand to grow in 22024 by 1.1 million bpd – half of the OPEC projection.
Analysts are thus hard at work to figure out what the 2024 oil market will look like.
Goldman Sachs recently cut its Brent price forecast for 2024 to between US$70 and US$90 per barrel from US$80 and US$100 per barrel stipulated earlier. The bank cited higher U.S. oil production as the reason for the revision.
Citigroup, meanwhile, is forecasting an average 2024 price of US$75 for Brent crude. JP Morgan sees Brent average price at US$83 per barrel during 2024, while Bank of America is the most bullish, expecting Brent to average US$90 per barrel in 2024. Morgan Stanley sits in the middle with a price forecast of US$85 per barrel.
The global oil picture is still bearish. Irina Slav of Oilprice.com feels that the price forecasts of the five major global banks may need to be revised down further unless OPEC+ decides to cut even deeper.
Barring any major, global, geopolitical, upheaval, oil markets continue to present a gloomy picture in the months ahead. From a crude market price perspective, the New Year may not be much different from 2023.
Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. His insights on global energy matters have been sought after by organizations such as the Department of Energy in Washington and the International Energy Agency in Paris.
For interview requests, click here.
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