The oil industry faces a critical turning point in 2024, as it seeks to carefully balance abundant supply with expectations of rising global demand.
It is expected that market dynamics driven by the significant increase in US oil production and the significant contributions of some producing countries – such as Brazil, Guyana, Norway and Canada – will have a profound impact on price trajectories in light of the OPEC Plus alliance – led by Saudi Arabia and Russia – adopting a policy of reducing supply.
The various forecasts paint different pictures, amid calls for a cautious stance due to concerns surrounding the economic slowdown in a number of economies.
In 2024, the oil sector faces a number of geopolitical and economic factors that may significantly affect the markets.
Demand growth
Despite these challenges, the Organization of Petroleum Exporting Countries (OPEC) maintained its optimism about the future of the oil market in 2024.
The organization expects an increase in demand for oil by 2.2 million barrels per day, while it expects an increase in supply from producers outside the organization by 1.4 million barrels per day.
OPEC attributes the expected increase to the growth of global gross product at a faster pace than last year.
The organization attributes the recent decline in oil prices to traders’ interventions and exaggerated fears, and it intends, along with its allies, to make an additional reduction in the current first quarter of the year by 0.9 million barrels per day to support market stability.
On the other hand, the International Energy Agency was less optimistic than OPEC, as it expected global demand for oil to rise in the new year by less than what the organization had estimated, noting that world consumption of oil would 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 continued extensions of voluntary production cuts by the OPEC+ alliance contributed to increasing withdrawals from crude oil stocks during the last quarter of 2023 to a greater extent than previous expectations, which may lead to a more stable market in 2024. .
In an interview with Al Jazeera Net, Al-Amoudi expects production growth outside the coalition to continue, with the pace slowing compared to previous years, as it may reach one million barrels per day in both 2024 and 2025, which represents half of the growth rate in 2023.
Al-Amoudi adds that the expected increase in production will come mostly from the United States, Canada, Brazil and Guyana, despite the possibility of slowing growth in US production due to the increasing focus on fiscal discipline and rising costs.
Al-Amoudi also expected the growth of US oil production to decline during 2024, and suggested that the current circumstances would push the main OPEC producers to reconsider the decisions taken regarding production.
He stressed that the geopolitical situation and current economic policies will also be major factors in this context.
Al-Amoudi pointed out that Iran may seek to increase its oil exports in the coming years, which he considers a factor that must be taken into consideration when talking about oil supply.
He pointed out that current oil prices are not considered very high, as they are declining by 40% from their highest levels in 2011, but he did not expect the expected increase in oil prices during 2024 to affect the global gross domestic product except marginally, explaining that it may increase inflation and delay decisions. Expected interest rate reduction.
Institutional expectations
Major American banks had presented their price forecasts, with Goldman Sachs lowering its forecast ceiling by between $80-81 for Brent crude. These forecasts are close to the expectations of the International Energy Agency, which expects the price of Brent crude to reach $82.57 per barrel in 2024.
Barclays Bank still expects an average price of $93 per barrel in 2024, while Standard & Poor’s Global believes that a price of $85 per barrel seems more appropriate.
Sector experts point out that the expected cut in interest rates – which may reduce borrowing costs in key consumption areas – and the weak dollar – which makes oil less expensive for foreign buyers – may boost demand in 2024.
A Reuters survey of the opinions of 30 economists and analysts expects the average price of Brent crude to reach $84.43 per barrel in 2024, compared to an average of about $80 per barrel this year and high levels of more than $100 in 2022 after the Russian-Ukrainian war.
A cautious year
The same state of uncertainty imposed on oil markets during the year 2023, as it underwent major adjustments due to the uncertainty surrounding demand growth and geopolitical tensions, especially the Ukrainian crisis and the Israeli war on Gaza and the subsequent tensions in the Red Sea and southern Lebanon.
Together, these events led to the restructuring of oil prices to pre-crisis levels and brought about changes in global trade flows.
The defining feature of the 2023 oil market was the prolonged implementation of production cuts by OPEC+ (an alliance that includes OPEC members and its allies), which represents 40% of global oil supplies.
In April 2023, the coalition announced additional cuts of 1.65 million barrels per day, in continuation of the previous cuts of two million barrels per day, which began in October 2022.
These measures represented a reduction of about 3.66 million barrels per day, equivalent to about 3% of the global demand for oil. The markets received this step positively, which led to an increase in oil prices.
Irina Slav, a writer specializing in oil, believes that despite OPEC Plus’ efforts to control oil prices by reducing production, reports indicate a decline in the alliance’s influence in light of weak expectations for demand, in addition to the market’s reaction to OPEC Plus’ measures and historical compliance issues.
Sulaf stressed that expectations of a decline in demand place the alliance facing serious challenges.
The momentum continued as the Kingdom of Saudi Arabia – a major player and one of the world’s top 3 oil producers – volunteered an additional reduction of one million barrels per day in June 2023 with the aim of achieving stability and balance in oil markets.
All of this led to a rise in oil prices to about $97 per barrel, recording an increase of 25% since June 2023.
It is noteworthy that the OPEC Plus alliance extended these cuts until the first quarter of 2024.
OPEC Plus faces challenges
In turn, Tsvetana Paraskova, who specializes in oil issues on the Oil Price website, points out how geopolitical events have affected oil prices in recent years.
Paraskova believes that the OPEC Plus alliance faces challenges in managing supplies in light of the high production capacity outside the Organization of the Petroleum Exporting Countries and geopolitical risks in major transit areas – such as the Red Sea – that pose major obstacles to controlling prices.
However, China’s ongoing economic recovery has dampened any sustained or significant rise in oil prices, and European countries have seen an economic slowdown, as evidenced by a 90,000 barrel-per-day drop in oil demand in Germany according to IEA estimates.
In addition, the United States has seen a 13-straight-month decline in manufacturing activity.
Disappointing growth in the Gulf
The “Gulf Economic Modernization” report recently issued by the World Bank expected that the Gulf Cooperation Council will witness growth of 1% in 2023.
However, this growth is limited due to the decline in oil sector activities, which is expected to contract by 3.9%, according to the report.
This contraction is due to successive production reduction decisions taken by the OPEC+ alliance and the slowdown in global economic growth.
The report indicates the possibility of compensating for the decline in oil sector activities in non-oil sectors, which are expected to grow by 3.9% in 2023 and maintain a growth rate of 3.4% in the long term.
This growth is due to continued private consumption, strategic investments, and the acceleration of supportive fiscal policies.
