Credit By: Goldman Sachs
With worries about oversupply, slowing economic growth, and possible geopolitical tensions in the Middle East that might cause price volatility, oil investors face uncertainty as we move into 2024. Even though Brent crude is expected to average about $80 per barrel in 2023, concerns remain for several reasons, such as a strong dollar, increased non-OPEC output, and the backdrop of record-high global demand that surpasses 100 million barrels per day.
After a wild 2022 that saw prices soar above $100 due to interruptions in Russian supplies brought on by the conflict in Ukraine, Brent crude averaged $80 per barrel in 2023. Despite this, prices were restrained by a robust dollar and significant non-OPEC production, even as worldwide demand hit previously unheard-of heights.
Price Projections and Demand Variances
According to a Reuters study, Brent crude is expected to average $84.43 a barrel by 2024. On the other hand, several demand growth estimates frame this expectation, ranging from 1.1 million to 2.25 million barrels per day.
Supply Dynamics and OPEC+ Compliance
Between 1.2 million and 1.9 million barrels per day are predicted to increase in the supply dynamics in 2024, primarily due to non-OPEC producers. Macquarie analyst Vikas Dwivedi is among the analysts who predict an oversupplied market all year long. Investors are keenly observing first-quarter supply statistics to evaluate OPEC and OPEC+ compliance with the voluntary output cutbacks of 2.2 million barrels per day. The first quarter is crucial when assessing compliance with these voluntary supply reductions.
Two significant geopolitical issues are reintroducing Venezuelan oil into international markets and possibly prolonging U.S. sanctions. In addition, there are questions about Iran’s goals for crude output by March 2024 and the future of Russian and Iranian oil shipments in the face of sanctions.
Refining Capacity and Crude Quality Dynamics
As more than 1 million barrels per day of new refining capacity come online in various locations during 2024, the sector is likely to experience an easing of the tightness in refined products, especially diesel. The dynamics of crude quality may also impact global price spreads, particularly the ratio of light sweet to medium sour grades.
Sourcing Trends and Regional Competitions
In 2024, non-OPEC producers—Brazil, Guyana, and the United States—are expected to increase output, influencing light-sweet oil availability. This may impact the variations in crude grade prices across the globe. Global sourcing patterns indicate that although the U.S. and Asia battle for heavy barrels, China and India are predicted to source crude from the Atlantic Basin more frequently. Relative profitability may change if profound crude sourcing changes, with China and India depending on Russia and Iran and the U.S. and India shifting to Venezuela.
In summary, oil investors in 2024 are juggling concerns about oversupply, geopolitical unpredictabilities, and shifting demand projections in a problematic picture. How these variables interact will dictate how oil prices develop over the next 12 months.
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