Factors Influencing Oil Prices in 2024

Oil prices, which experienced a notable decrease in 2023 compared to the previous year, are expected to face certain challenges that may limit substantial increases in 2024.

In 2023, despite geopolitical tensions such as the Hamas-Israel conflict and concerns about oil transit routes due to Houthi rebel attacks, oil prices did not sustain a significant rise. Brent Crude, the international benchmark, reached its peak of $98 per barrel in September but failed to surpass this level throughout the rest of the year. The OPEC+ oil production cuts also had limited impact, with the market largely anticipating the reductions.

The U.S. Energy Information Administration estimates that Brent Crude prices averaged $83 per barrel in 2023, a notable decrease from the $101 per barrel average in 2022.

Global markets swiftly adjusted to the EU and G7 embargo on Russian oil imports, with Moscow redirecting crude cargoes to Asia, particularly China and India. This adjustment, combined with lower-than-expected global crude oil demand, offset the effects of OPEC+ supply curbs.

Major bearish drivers for oil prices in 2023 included concerns about economic and oil demand growth, along with higher-than-anticipated supply from non-OPEC+ producers.

The OPEC+ alliance aims to maintain control over global oil supply with announced cuts for the first quarter of 2024. However, challenges arise from record-breaking U.S. oil production and increased supply from non-OPEC+ producers like Brazil, Guyana, Canada, and Norway. Brazil, while invited to join OPEC+, has opted not to participate in production cuts.

Despite OPEC+’s efforts to support oil prices, the rise in non-OPEC+ oil supply counteracts some of the intended effects. Additionally, geopolitical risks have increased, exemplified by Iran sending a warship to the Red Sea. While this situation raises concerns, a comfortable oil balance in the first half of 2024 helps alleviate some worries, according to analysts.

For the year ahead, oil prices are not expected to see a significant increase from current levels, barring a major escalation of tensions in key oil transit points such as the Red Sea and the Strait of Hormuz. Anticipated weak global economic growth is projected to restrain oil demand growth in 2024, with the average U.S. benchmark oil price expected to remain below $80 per barrel.

According to a Reuters poll of 34 analysts and economists, WTI Crude is forecasted to average $78.84 per barrel in 2024, down from the previous estimate of $80.50. Similarly, Brent Crude prices are expected to average $82.56 per barrel this year, down from the November consensus forecast of $84.43. In the December survey, only one contributor out of 34 expected the average Brent prices to exceed $90 per barrel in 2024.

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