FX168 Financial News Agency (North America) News This year is an unstable year for the crude oil market. Compared with the average price in 2022, oil prices have fallen by about 17%.
At the same time, production cuts by some of the world’s largest oil producers and strong demand for oil from U.S. consumers have provided a floor for oil prices, which many fear will fall further after more than doubling from early 2021 to mid-2022.
“We expect more of the same in 2024,” Natasha Kaneva, head of global commodities research at JPMorgan, wrote in a recent report on global oil markets.
Natasha Kaneva and her team expect the price of international benchmark Brent crude to be “largely flat” by 2024, with their forecast calling for prices to average $83 a barrel next year and $81 a barrel this year. The company expects Brent crude prices to fall 10% by 2025, to average $75 a barrel.
West Texas Intermediate and Brent crude rose about 2% on Monday, hovering above $78 and $82 a barrel respectively.
The J.P. Morgan team predicts that global oil demand will increase by 1.6 million barrels per day next year; Future supply growth is expected to come mainly from oil-producing countries outside OPEC and its allies (OPEC+), such as the United States.
“Despite ongoing economic pressures, we see demand being supported by strong emerging markets, resilient U.S. markets and weak but stable European markets,” JPMorgan wrote Two-thirds of this will come from overall economic expansion, while continued normalization of jet fuel will contribute the remainder.”
“To maintain a balanced oil market, the OPEC+ alliance needs to continue to limit production,” the company wrote in a report, referring to OPEC+’s current production cuts as well as unilateral production cuts by its largest oil producer, Saudi Arabia.
In April, OPEC+ surprised the market by announcing it would cut production by more than 1 million barrels per day, half of which came from Saudi Arabia. Subsequently, Russia also announced a production cut of 500,000 barrels per day.
Andy Lipow, president of Lipow Oil Associates, said immediately after announcing the production cuts: “OPEC+ needs higher prices to meet its domestic budget spending considerations. When oil prices fall, OPEC+ will continue to take preemptive action.”
In June, OPEC+ members announced that the organization would extend production cuts until next year. Tight supplies caused crude oil futures to rise more than 25% in the third quarter, prompting many to call for a crude price of $100 a barrel.
In late September, crude oil prices hit 2023 highs, with Brent crude closing above $96 a barrel and WTI crude closing above $93 a barrel.
Despite a brief period of sharp volatility following the outbreak of Israel’s war with Hamas, oil prices have been falling, largely due to concerns about rising inventories and slowing demand. Prior to Friday, oil prices had fallen for four consecutive weeks.
Tom Kloza, head of energy analysis at OPIS, said: “This proves that there can be problems in the Middle East and there are various geopolitical possibilities. But they are not going to pursue higher crude prices until they prove it to the market.”
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Nonetheless, the market remains sensitive to changes in OPEC+. Crude oil prices surged 4% on Friday after OPEC+ sources told Reuters the group would consider whether to further reduce supply at its Nov. 26 meeting.
OPEC+’s long-term game
In addition to the near-term supply and demand changes affecting oil prices, the J.P. Morgan team also believes that longer-term changes in OPEC+ policy will change the plans of U.S. producers in the coming years.
“Global oil demand growth will slow to 1 million barrels per day as the final stages of the post-pandemic rebound tapers off, as energy efficiency improves and electric vehicles scale up,” JPMorgan wrote , the market may experience a massive surplus, dragging Brent crude prices to around $60 by the end of 2025.”
JPMorgan believes a large part of oil price behavior hinges on whether Saudi Arabia and Russia continue to voluntarily curb production in 2024 and 2025. If these production cuts are lifted and more supply is introduced to the market, oil prices will fall. In this case, JPMorgan noted that “U.S. oil operators are likely to react.”
JPMorgan added: “However, the complete removal of the 1.3 million barrels per day voluntary production cut and the resulting price decline could trigger a slowdown in drilling and fracking activity in the second half of 2024.”
If that happens, production cuts by U.S. oil producers would push the company’s 2025 Brent price forecast higher by $7 to an average of $65.