Oil prices are forecast to remain in the $70-$90 range this year based on current supply-demand dynamics and a decrease in global economic risks.
Basing this year’s oil price forecasts on economic growth data and supply-demand expectations, leading investment banks on Wall Street, including JP Morgan, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley, highlight the potential for sudden price fluctuations due to geopolitical events that could disrupt supply.
J.P. Morgan predicts that oil prices will remain largely stable in 2024, with the average price of Brent crude expected to be around $83 per barrel. This forecast is grounded in the resilience of oil demand in the US, strong demand growth in emerging markets and stable expectations in European markets.
Goldman Sachs points to a decrease in the risk of a global recession that could positively impact oil demand. However, the bank said increases in US production could moderate price rises.
It also predicts that Brent crude will average $81 per year this year, with the benchmark staying in the $70-$90 range.
Morgan Stanley anticipates that Brent will average $80 per barrel in the first half of the year, with a potential decline in the latter half, with the possibility of increased global oil supply outpacing demand growth.
Among the five Wall Street banks, only the Bank of America expects significant gains this year, forecasting an average of $90 a barrel. Citigroup, with the lowest projection, estimates an average of $75 per barrel, considering increased US production and continued production cuts by OPEC+.
The global rating agency Fitch Ratings forecasts that with supply cuts from OPEC+ oil-producing countries, led by Saudi Arabia and Russia, Brent will average $85 a barrel this year.
- Balance foreseen in this year’s oil markets
Robbert Marneffe, a commodity consultant at the Netherlands-based International Commodity Consulting (ICC), said investors this year will pay close attention to OPEC+'s supply cut decisions, demand recovery in the US that depends on the timing of the Federal Reserve’s 'soft landing' in interest rate cuts, and the likelihood of the US maintaining momentum in oil production.
Marneffe told Anadolu that other topics that will be monitored include geopolitical developments and whether China, the world's largest oil importer, will employ stimulus programs to boost its economy and if demand for its refineries rises.
Anticipating that Brent crude will remain at between $73 and $93 per barrel, Marneffe expects “a lot of volatility in or around the range.”
“I believe oil demand will keep growing for longer than many expect, and we will have a period of tight balances in a few years' time,” he said.
Marneffe maintains that oil flow and investments are increasingly shifting to higher-demand growth areas like Asia and Africa. He warned that Europe might face consequences for removing oil and natural gas too quickly and early from its energy portfolio.
Marneffe also stressed that supply and demand are likely to remain mostly balanced, contrary to the International Energy Agency's (IEA) prediction of a daily surplus of 1.3 million barrels in the first quarter.
“I doubt the first quarter surplus will materialize in the magnitude IEA predicts and rather see it towards balanced supply and demand,” Marneffe said without fully ruling out the IEA’s prediction.
In response to concerns that OPEC+'s continued production cuts might eventually reduce the group's market share and control, Marneffe said, “Once US shale has plateaued and eventually peaked and OPEC can keep their ranks closed and restore credibility, they will remain the block with the most real control on markets.”
- Demand to be key ‘known-unknown’ variable in 2024
Julien Mathonniere, an oil markets economist at the US-based Energy Intelligence Group, asserted that geopolitical events like conflicts and wars have short-term effects on prices but do not create long-term trends.
He stressed that the Israel-Palestine conflict and ongoing tensions in the Red Sea have only caused temporary spikes.
“Oil prices barely reacted to the war between Israel and Hamas,” Mathonniere said, elaborating that the Houthi attacks on Israel-linked vessels in the Red Sea have continued, but Brent prices are still struggling to retain their $4-$5 risk premium.
Mathonniere affirms that the rising fragmentation in commodity markets and long-term trade restrictions are the main factors influencing price formation.
He said while developments in the Red Sea are causing short-term fluctuations, sanctions on the Russian oil trade are having a more lasting impact on the market.
“Some trade routes become longer and sub-optimal, which means the cost of doing trade has increased –as Red Sea events remind us–, prices are more volatile because adjustments are more frequent and sudden, and commodity markets are more fragmented and less transparent as a result of voluntary concealment, notably by entities trading Russian oil,” he said.
He predicts that demand will be the key “known-unknown” variable in 2024. This is based on expectations that non-OPEC producers like the US, Brazil, and Guyana will increase their daily oil capacities by 1.5 million barrels in 2024 and 1.4 million barrels in 2025 to potentially meet the demand increase and alleviate supply concerns.
According to Mathonniere's forecast, the post-pandemic recovery and mounting economic constraints will cause demand to revert to historic norms of around one million barrels per day (bpd). The rise in travel is expected to modestly offset the demand for jet fuel and petrochemical products like LPG and naphtha.
“This combination should keep prices in the $75-$85 range and leave limited room for OPEC+ to unwind its cuts since October 2022,” he said.
Mathonniere affirms that the OPEC+ group's oversupply issue—which currently stands at over 5 million bpd, combined with significant Chinese inventories—will constrain prices.
“Even if OPEC’s forecast of 2.25 million bpd in demand growth is realized in 2024, that still rules out a major tapering of Saudi Arabia’s current cuts in a fair and orderly manner, as we expect around 1.5 million bpd of non-OPEC+ supply growth next year,” Mathonniere concluded.
By Firdevs Yuksel and Sibel Morrow
Anadolu Agency
energy@aa.com.tr