As the oil industry approaches a pivotal point in 2024, it aims to finely balance supply abundance with the expected rise in global demand.
Market dynamics fueled by the significant increase in American oil production and substantial contributions from producer countries like Brazil, Guyana, Norway, and Canada are anticipated to profoundly affect price trajectories, as the "OPEC Plus" alliance, led by Saudi Arabia and Russia, adopts a policy of reducing supply.
Diverse projections paint varying pictures, amidst calls for a cautious stance due to concerns about economic slowdown in several economies.
In 2024, the oil sector faces a series of geopolitical and economic factors that could significantly impact the markets.
Demand Growth
Despite these challenges, OPEC maintains its optimism about the future of the oil market in 2024.
The organization predicts an increase in oil demand by approximately 2.2 million barrels per day, and an expected increase in supply from non-OPEC producers by about 1.4 million barrels daily.
OPEC attributes the expected growth to a faster pace of global GDP growth than the previous year.
The organization also attributes the recent decline in oil prices to trader interventions and overstated fears, planning with its allies to cut an additional 0.9 million barrels per day in the current first quarter to support market stability.
In contrast, the International Energy Agency was less optimistic than OPEC, expecting the global oil demand to rise in the new year by less than what the organization has predicted, indicating that the world's oil consumption will increase by 1.1 million barrels per day in 2024, according to its latest report.
According to estimates by political economy professor Moaz Al-Amoudi, the ongoing voluntary production cuts by the OPEC Plus alliance contributed to a greater withdrawal from crude oil inventories during the last quarter of 2023 than previous expectations, which could lead to a more stable market in 2024.
Al-Amoudi expects continued growth in production outside the alliance, although at a slower pace compared to previous years, potentially reaching one million barrels per day in both 2024 and 2025, representing half the growth rate of 2023.
He adds that the expected increase in production will most likely come from the United States, Canada, Brazil, and Guyana, despite the possibility of a slowdown in American production due to increased focus on financial discipline and rising costs.
Al-Amoudi predicts a decline in American oil production during 2024 and suggests that current conditions might prompt major OPEC producers to reconsider production decisions.
He emphasizes that the geopolitical situation and current economic policies will also be crucial factors in this context.
Al-Amoudi points out that Iran might seek to increase its oil exports in the coming years, a factor that should be considered when discussing oil supply.
He notes that current oil prices are not extremely high, as they are 40% below their peak levels in 2011 but does not expect the anticipated increase in oil prices during 2024 to have a significant impact on the global GDP except marginally, possibly increasing inflation and delaying anticipated interest rate cuts.
Predictions indicate that the average price of Brent crude will be $84.43 per barrel in 2024.
Institutional Expectations
Major American banks have provided their price forecasts, with Goldman Sachs lowering its expectations to between $80 and $81 per barrel for Brent crude, aligning closely with the International Energy Agency's projection of Brent crude reaching $82.57 per barrel in 2024.
Barclays Bank still anticipates an average price of $93 per barrel in 2024, while "Standard & Poor's Global" deems a price of $85 per barrel more appropriate.
Sector experts indicate that the expected reduction in interest rates—which may reduce borrowing costs in major consumption areas—and a weakening dollar—which makes oil less expensive for foreign buyers—could boost demand in 2024.
A Reuters survey of 30 economists and analysts predicts the average price of Brent crude to be $84.43 per barrel in 2024 compared to an average of around $80 this year and high levels of over $100 in 2022 after the Russian-Ukrainian war.
A Year Marred with Caution
Uncertainty imposed itself on oil markets in 2023, undergoing significant adjustments due to ambiguity surrounding demand growth and geopolitical tensions, especially the Ukrainian crisis and Israeli war on Gaza, followed by tensions in the Red Sea and South Lebanon.
These events collectively led to restructuring oil prices to pre-crisis levels and shifting global trade flows.
A defining feature of the oil market in 2023 was the prolonged implementation of production cuts by OPEC Plus, representing 40% of the global oil supply.
In April 2023, the alliance announced additional cuts of 1.65 million barrels per day, building on the previous cuts of two million barrels per day, which started in October 2022.
These measures represented a cut of about 3.66 million barrels per day, equivalent to about 3% of global oil demand, and were positively received by the markets, leading to increased oil prices.
Oil specialist Irina Slav believes that despite OPEC Plus' efforts to control oil prices through production cuts, reports indicate a diminishing impact of the alliance amid weak demand expectations, coupled with the market's reaction to OPEC Plus' measures and historical compliance issues.
Slav confirms that demand decline expectations present significant challenges to the alliance.
The momentum continued with Saudi Arabia—a key player and one of the three largest oil producers in the world—voluntarily cutting an additional one million barrels per day in June 2023 to achieve stability and balance in the oil markets.
This led to oil prices rising to around $97 per barrel, a 25% increase since June 2023.
It is noted that the OPEC Plus alliance extended these cuts into the first quarter of 2024.
Red Sea Attacks at the Forefront
The attacks by the Yemeni Houthi group on shipping vessels in the Bab al-Mandab Strait and the Red Sea add uncertainty to the future of oil prices. Nevertheless, with the continued production cuts by OPEC Plus, oil prices fell by more than 3%, reaching their lowest levels in six months in the middle of last month.
Bab al-Mandab is one of the most important global routes for shipping, especially of crude oil and fuel from the Gulf to the Mediterranean via the Suez Canal or the nearby Sumed pipeline, as well as goods heading east to Asia, including Russian oil.
OPEC Plus in the Face of Challenges
Tsvetana Paraskova, an oil issues specialist at "Oil Price," reflects on how geopolitical events have impacted oil prices in recent years.
Paraskova believes that the OPEC Plus alliance faces challenges in managing supplies amid rising production capacities outside OPEC and geopolitical risks in key transit areas like the Red Sea, posing significant obstacles to price control.
However, continued economic recovery in China has curbed sustained or significant increases in oil prices. European countries experienced an economic slowdown, evident from a 90,000-barrel-per-day reduction in oil demand in Germany according to the International Energy Agency.
In addition, the United States saw a 13-month sequential decline in manufacturing activity.
Disappointing Growth in the Gulf
The World Bank's recent "Gulf Economic Update" report predicts the Gulf Cooperation Council will experience growth of 1% in 2023.
However, this growth is limited due to the decline in oil sector activities, expected to contract by 3.9%, according to the report.
The contraction is attributed to the successive production cut decisions made by the OPEC Plus alliance and the slow global economic growth.
The report points out the possibility of compensating for the decrease in oil sector activities with non-oil sectors anticipated to grow by 3.9% in 2023, maintaining a long-term growth rate of 3.4%.
This growth is due to ongoing private consumption, strategic investments, and accelerating supportive fiscal policies.
