Oil to hover above $80 in 2024

Crude oil futures lost over 10% in 2023

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Issac John

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Oil pumps work in the desert oil fields of Sakhir, Bahrain.— AP file
Oil pumps work in the desert oil fields of Sakhir, Bahrain.— AP file

Published: Sun 7 Jan 2024, 7:21 PM

Expected weak global economic growth and increased supply from non-Opec producers will lead to slow oil demand growth in 2024, keeping the average US benchmark oil price below $80 per barrel despite output cuts by around six million barrels per day by Opec and allies, representing about six per cent of global supply, market analysts said.

Supply-demand balances show a situation of oversupply and stock builds in the first half of 2024, with some deficit seen only by Q3 2024. In the base case, oil prices will likely hover above $80 per barrel and can inch closer to $90 per barrel by Q3 2024, said S&P Global Commodity Insights.

WTI crude is expected to average $78.84 per barrel in 2024, a Reuters poll of 34 analysts and economists showed. Brent Crude prices are now expected to average $82.56 per barrel per barrel this year, down from the $84.43 consensus forecast in a November poll.

Oil prices, which had averaged above $100 per barrel in 2022, were significantly lower in 2023 and averaged just above $80 per barrel despite another war — Israel-Hamas war — breaking out late last year. Crude oil futures lost over 10 per cent in 2023 in a volatile year of trading and reported their biggest annual drop since 2020, marked by geopolitical conflict in the Middle East and concerns about the oil output levels of major producers around the world.

The latest war, which began in early October, lifted oil prices, but only briefly. In less than a month, prices had given up all the gains from the new geopolitical risk in the most important oil-producing and oil cargo transit region in the world.

Market analysts said the rising non-Opec+ oil supply is offsetting the effect of some of the cuts and the geopolitical risk that has increased in the new year after Iran sent a warship to the Red Sea.

“While the geopolitical situation is a concern for the oil market, a fairly comfortable oil balance over the first half of 2024 does help to ease some of these worries,” ING strategist Warren Patterson wrote in a recent note..

Market experts do not expect oil prices to rise too much from current levels, barring a major escalation of tensions in the Red Sea and around the other oil transit chokepoint in the Middle East, the Strait of Hormuz.

Analysts believe that Opec and its allies’ ongoing collaboration, despite recent changes like Angola’s departure, signals a controlled approach to oil supply management. The decisions made in the upcoming Opec+ meeting on February 1 will be critical, they said.

Angola’s exit from Opec effective in January 2024, 16 years after joining the group in 2007, will reduce the organisation’s membership to 12 countries, impacting its crude oil production – which currently stands at about 27 million barrels per day (bpd) — constituting 27 per cent of the world’s oil market. This move follows in the footsteps of Ecuador in 2020 and Qatar in 2019, marking a significant shift in the dynamics of the global oil industry.

Angola’s departure is poised to exacerbate Opec’s declining share, which stood at 34 per cent in 2010, highlighting broader challenges for the organisation.

Nevertheless, in order to counter a seasonal weakness in oil demand and downward pressure on oil prices, some Opec+ countries plan to produce less oil — about 900,000 bpd less on a nominal basis—in the first quarter of 2024 than currently.

Saudi Arabia, which has voluntarily cut its output by one million bpd since July, will prolong that cut through the first quarter of 2024. Consequently, Saudi oil production will remain unchanged from current levels. Additionally, Brazil looks set to join the alliance in January 2024.

“Taken together, the two developments from the Opec+ meeting preserve the unity of the group at a challenging time — with prices under pressure from a looming oil oversupply early next year — and expand its reach. Brazil is a major oil producer whose output has been rising,’’ said Bhushan Bahree, executive director, S&P Global Commodity Insights.

Saudi Arabia said it would prolong its unilateral cut of one million bpd through the first quarter of 2024. Because this cut has been in place since July 2023, it will not reduce oil supply from current levels.

Russia announced it would voluntarily cut an additional 200,000 bpd of supply, bringing its total reduction to 500,000 bpd in Q1 2024. The reduction will be from an average level of exports in May and June 2023 and will consist of 300,000 bpd of crude and 200,000 bpd of refined products.

Kurt Barrow, head of Oil Markets, S&P Global Commodity Insights, said: “Strong non-Opec+ supply growth and slowing oil demand growth have led Opec and its allies to curtail output and support prices. While this tactic has achieved some success, maintaining discipline among member countries may be difficult in 2024 as the loss of market share continues and non-Opec+ volumes increase.”

Opec+’s ability to follow through on voluntary production cuts will be key to crude pricing in 2024, according to the analyst.

S&P Global Commodity Insight’s supply-demand balances show a situation of oversupply and hence stock builds in the first half of 2024, with some deficit seen only by Q3 2024. In the base case, oil prices will likely hover above $80 per barrel and can inch closer to $90 per barrel by Q3 2024, according to the energy data firm.


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