The global oil market is currently in a state of flux, characterized by contrasting supply and demand trends, ongoing geopolitical uncertainties, and a shifting macroeconomic landscape.
Supply and Demand Dynamics
On the supply side, non-OPEC+ production is expected to see significant growth. This surge, driven by countries like Brazil, Guyana, Canada, and the United States, is projected to reach 1 million barrels per day (b/d) year-over-year (YoY) in 2024 and 1.6 million b/d YoY in 2025. Meanwhile, OPEC+ may potentially reintroduce some production into the market in late 2024, aiming to adjust the supply-demand balance by reducing current cuts from 6.7 million b/d to around 4.25 million b/d by the end of 2025.
Demand growth, however, is anticipated to slow down considerably. Factors like rising electric vehicle (EV) penetration in China and elsewhere are contributing to this moderation. Analysts predict global oil demand growth to average 1 million b/d in 2024 and 1.1 million b/d in 2025. Notably, demand for specific products such as jet fuel, diesel, and petrochemical feedstock is expected to remain robust despite the overall slowdown.
Price Outlook
The average price forecast for Brent crude oil is $86 per barrel (bbl) in 2024 and $80/bbl in 2025, with West Texas Intermediate (WTI) following a similar trajectory of $81/bbl in 2024 and $75/bbl in 2025. However, a surplus of 700,000 b/d is expected in the global oil market by 2025 due to accelerating non-OPEC+ supply and slowing demand growth. This surplus could lead to a substantial increase in both commercial and strategic oil inventories.
Geopolitical and Macroeconomic Influences
Geopolitical instability, particularly in the Middle East, presents a significant risk to oil prices. Events like military confrontations or attacks on energy infrastructure could cause substantial price spikes. Rising attacks on energy infrastructure globally heighten the risk of supply disruptions.
The report projects lower US interest rates and a weakening dollar by 2025. This economic environment could support oil prices as a weaker dollar makes oil more affordable in other currencies. Additionally, anticipated economic stimulus in China could provide further support by boosting industrial activity and construction.
Potential Downside Risks
Rising tariffs, particularly in the context of US presidential election outcomes, could negatively impact emerging markets and global commodity demand. This scenario could dampen oil demand growth and flatten the Brent crude oil curve.
Comparative Analysis
Compared to historical levels, especially when adjusted for inflation, current energy prices, including oil, are relatively cheap. This valuation provides a floor for prices despite current market pressures. Long-dated Brent crude oil prices have also remained relatively stable, averaging around $70/bbl in recent years. This stability suggests that while spot prices may be volatile, long-term prices are expected to be well-supported.
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