As always, supply and demand are the typical variables to predict the price of a good or service in the market economy. But in the case of oil, just a few days away from shelving 2023, neither one nor the other is clear. What's more, there are completely opposite versions about oil, which this year has accumulated a 10% decrease in its price, which ended 2022 at 85.91 a barrel (Brent variety) and is now moving at 76.5 dollars, after hitting annual highs at the end of September at $96.5.
This same week, the forecasts of the International Energy Agency (IEA) were released, which point to a slowdown in crude oil demand at the end of this year and also throughout 2024. The IEA has reduced oil demand by 400,000 barrels. daily demand for crude oil in the last quarter of the year after forecasting an increase of 2.3 million barrels per day, up to 101.7 million per day. “The slowdown will continue into 2024, with global growth halving to 1.1 million barrels per day as GDP growth remains below trend in major economies. The improvement in efficiency and the rise of the electric vehicle fleet will also affect demand,” according to the Agency.
However, the oil cartel, OPEC, does not even want to hear about a decrease in the increases in demand for 2024. It foresees, again, that it will grow at a rate of 2.2 million barrels per day to reach the record consumption figure of 104.4 million. Without a doubt, this opinion of the world oil lobby is self-interested and does not conform to the trend seen in recent months or to the behavior of the price of this raw material. On October 6, the day before the Hamas attack on the Israeli population, Brent was trading at $84.58 and is now almost $8 below that level, despite the fact that fear of an extension of the conflict in the area raised its price to $92.16 per barrel on October 20.
The lack of reaction to the war conflict that began with the Israeli counteroffensive on Gaza territories even led OPEC to announce a cut in production, which has not had the desired effect of causing an increase in prices that obviously benefits to the producers. Thus, December began with the request of Saudi Arabia and Russia – the two largest oil exporters in the world – to all members of OPEC+ to join an agreement to cut production of 2.2 million barrels per day for the first quarter of 2024. This cut amounts to one million barrels per day for Saudi Arabia, 500,000 for Russia, 223,000 for Iraq, 163,000 for the United Arab Emirates, 135,000 for Kuwait… But the market has not finished believing these cuts , with Iran or Nigeria – historical members of the cartel – producing above their quotas and a Russia whose position is conditioned to maintain the expenses of its invasion of Ukraine. Once again, the price of oil fell again. To add to this failure, the United States is setting record oil production totaling 13 million barrels per day.
Less demand
The arguments of a slowdown in demand maintained by the IEA are corroborated by the weakness in Chinese oil imports. The latest Chinese customs data for November show a 9% drop in imports. However, analysts point to the strength of new emerging markets that can balance what has been lost in the Asian giant. The most cited case is that of India, which could increase its consumption. Likewise, the slowdown expected for next year in both the United States and Europe becomes a bearish element for crude oil: the less economic growth, the less demand for oil.
For its part, the World Bank has drawn three price scenarios if producers really manage to limit the supply of oil, while demand is maintained. With a cut of two million barrels per day, its price would move between 93 and 102 dollars per barrel; with five million less it would reach 109-121 dollars and, finally, a decrease of eight million barrels would raise prices to a range of 140-157 dollars.
Forecasts
Despite the bearish evolution of oil in the year, analysts in their reports for 2024 do not disdain its strategic influence since a price increase could affect inflation and, therefore, the expected drops in interest rates. Nor does anyone dare to predict a debacle in its price despite having demonstrated its inability to react to bad news. Another element that weighs in favor of a rising crude oil price is the evolution of the dollar if it continues to depreciate, as the raw material is linked to the greenback.
The disparity in forecasts for the price of oil speaks clearly of the disorientation about how demand and supply will evolve. For example, Bank of America expects an average price of $89 for next year, while JP Morgan points to a range between $81-86 by mid-2024. Goldman Sachs indicates that it will fluctuate in a range of $80 to $105. , while Renta 4 analysts place its level around $90 per barrel due to fears of disruptions in supply.
At Bankinter, for their part, they expect an average price of 70 dollars for the whole of the next year, which coincides with GVC Gaesco's forecast, also of 70 dollars with the possibility of reaching 60 in 2025. The American bank Morgan Stanley also places oil at 70 dollars in the first months of the year and expect a slight increase to 72.5 dollars until the middle of the year.
$70 a barrel is established as the most probable floor for experts throughout 2024. Predictions that any major incident of war would ruin. Also the trend to replace oil with clean energy. As Bank of America analysts say, “the security of energy supply would take precedence over decarbonization plans.”
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