The prospects for oil

The slowdown of the world's major economies, lower demand for crude oil from China, lower production and the possibility of supply shocks are elements that will define the oil market this year, according to experts quoted by the international trade press.

Last year, the Organization of the Petroleum Exporting Countries and its allies (OPEC+), which supplies about 40% of global crude, continued to cut production in anticipation of a slowdown in global economic growth. Under these conditions, the quotation of the global reference Brent oscillated between a minimum of 72 dollars per barrel and a maximum of 97 dollars per barrel, after, a year ago, crude oil had reached records not seen in more than a decade.

• The oil industry expects OPEC+ to extend production cuts in the second quarter of this year

Oil industry analysts expect the OPEC+ group to extend production cuts in the second quarter of this year, according to a Bloomberg survey published late last week, according to oilprice.com.

In April last year, the group had decided on an additional reduction of 1.65 million barrels per day, after the one in October 2022, so that in June Saudi Arabia would cut another million barrels per day from production, measures that were extended until at the end of the first quarter of this year.

"OPEC+ has no choice but to extend the current reductions, to avoid a crisis," said Tamas Varga, PVM Oil Associates Ltd analyst, quoted by oilprice.com.

The survey showed that fourteen out of seventeen traders and analysts polled by Bloomberg are betting that the organization will not change its production-related plans in the coming quarter. Moreover, some believe that OPEC+ is likely to cut production further after countries such as Iraq and Kazakhstan overproduced in January.

According to Reuters sources, OPEC+ is indeed considering extending production cuts in the second quarter to support oil prices. It is even possible that the group will maintain the cuts even until the end of the year, two sources of the press trust said.

• The International Energy Agency estimates that oil supply will exceed demand this year

The International Energy Agency (IEA) signals the slowdown in the growth of global oil demand, which in January was 1.4 million barrels per day, below the 2.8 million in the third quarter of last year, respectively 1.8 million in the fourth quarter, writes oilprice.com. T

The agency estimates that demand will increase by 1.2 million barrels per day this year, half of last year's growth, as economies perform below long-term trends and measures related to energy efficiency and the electrification of the transport sector intensifies, according to the latest published report. On the other hand, the Agency estimates that supply will exceed demand and increase by 1.7 million barrels per day, driven mainly by higher production in the United States, Brazil, Canada and Guyana, according to CNBC.

"At the beginning of 2024, the risk of interruptions in the global oil supply due to the conflict in the Middle East remains high, especially for transports through the Red Sea and especially the Suez Canal", the IEA also notes in the report, adding that approximately 10% of trade last year's oil shipment was through the Red Sea, writes Economy Middle East News.

OPEC is forecasting higher oil demand growth this year, by 2.25 million barrels per day. "The market always gives more credibility to OPEC because it is the group that produces and trades oil and therefore has a better perspective on the market," said Manish Raj, managing director at Velandera Energy Partners, quoted by CNBC.

• Standard Chartered: "Fundamentals are better than oil prices suggest"

Commodity analysts at Standard Chartered say fundamentals are better than current oil prices suggest and the discount given by geopolitical risks is massive. In their view, today's global crude oil surplus appears against the background of a seasonality specific to January, and the surplus is smaller than the average of the last twenty years.

According to the financial group, to truly reflect market fundamentals, the price of Brent crude would need to reach at least $90 per barrel. Their estimate is that the global benchmark will average $92 per barrel in the first quarter of this year, $94 in the second quarter, $98 in the third and $106 in the fourth quarter, according to oilprice .com and Rigzone.

In the early days of this week, Brent oil traded between $81.1 and $83.7 per barrel.

For 2025, the team at Standard Chartered expects a general price of $109 per barrel, rising to $128 in 2026, before falling to $115 in 2027. The scenario implies that the global surplus will begin to dissipate after 2024, according to the mentioned sources.

• JPMorgan expects oil prices to fall next year

JPMorgan expects oil prices to remain largely stable in 2024, with the average price of the Brent crude expected to hover around $83 a barrel, according to Rigzone. For the first quarter of the year, the bank's analysts estimate an average price of $79 per barrel, for the second and third quarters of $84 per barrel, respectively $85 per barrel in the fourth quarter.

For 2025, JP Morgan expects an average price of $75 per barrel, according to Rigzone. The US Energy Information Administration (EIA) forecasts Brent crude to average $82.42 in 2024 and $79.48 in 2025, according to oilprice.com.

• ANZ analysts estimate that Brent oil can reach $90 by the end of the year

Analysts at ANZ Financial Group based in Melbourne, Australia, believe Brent crude can reach $85 a barrel in the near term and possibly $90 by the end of the year. Those prices would translate to $80 for West Texas Intermediate (WTI) crude in the near term and $85 by the end of the year, according to The Street.

Although they see price increases, ANZ analysts believe there is sufficient supply globally and, more importantly, some surplus among OPEC members which minimizes the risk of a serious global price shock.

• Goldman Sachs raised its estimate for summer crude oil price peak to $87 a barrel from $85

For most of February, the price of Brent crude oil remained above the $80 per barrel level as OPEC+ production cuts continued and shipments were redirected from the Red Sea and the Suez Canal, according to Oilprice.com. "Oil was caught between positive factors such as lower OPEC production and geopolitical tensions alongside fears of weaker demand from China," ANZ analysts said in a note. Attacks by Houthi rebels in the Red Sea have increased shipping rates and shipping times for crude oil, Reuters writes.

According to Goldman Sachs analysts, the geopolitical risk premium given by Houthi rebels' attacks on ships in the Red Sea remains small, at just two dollars a barrel for Brent. Goldman raised its summer peak estimate for crude oil to $87 a barrel from $85 as events in the Red Sea led to better-than-expected draws from Organization for Economic Co-operation and Development countries, according to the London-based media trust.