Heading into 2024, the biggest wildcards include demand from China and cohesion within OPEC+.
US oil production isn’t expected to soar next year like it did in 2023.
Crude prices fell 10% in 2023 as surging US supplies offset cuts from Saudi Arabia and Russia.
Crude oil prices saw wild swings in 2023 before finishing the year down 10%, and more volatility could be ahead in 2024.
The key forces driving oil markets delivered big surprises over the past year, and they represent major sources of uncertainty in the new year.
According to analysts, here’s what could jostle the oil market, from OPEC’s weakening control over prices to China’s economic slowdown.
The cartel has failed to prop up oil prices by cutting production, in part because non-OPEC nations like the US, Brazil, and Guyana have kept filling the hole. And fresh pledges from OPEC+ to extend reductions into early 2024 are falling flat.
“I don’t want to say they’re out of ammo, but they’re kind of out of ammo,” Rebecca Babin, a senior equity trader for CIBC Private Wealth, told Business Insider.
Analysts say its ability to work together and manage the market is being questioned. OPEC’s last meeting in November was chaotic, with members struggling to agree on cuts. Earlier this month, Angola announced it would quit the group.
“I think the main risk for the market is the OPEC cohesion or lack thereof potentially as well,” Hunter Kornfeind, an oil analyst from Rapidan Energy, said.
OPEC’s de facto leader has traditionally stepped in to restore order to the oil group and the overall market. One energy expert warned earlier that Saudi Arabia could wage a market share war with the US next year to regain control over oil prices.
But Riyadh has other priorities that may prevent it from boosting supply to drive prices and profits down, forcing other producers to exit the market.
Saudi Arabia has a lot of huge infrastructure projects coming on at the end of this decade, Homayoun Falakshahi, an oil analyst from research firm Kpler, pointed out.
The kingdom is hosting the 2029 Asian Winter Games, the 2030 World Expo, and the 2034 FIFA World Cup, which will require a lot of money, and the country’s budget is dependent on oil.
The world’s top oil importer has been roiled by a real estate crash, a debt crisis, and lackluster growth coming out of COVID, which have softened demand.
Babin recently said doubts about China’s economy would be the oil market’s biggest concern in 2024, followed by fear that US production will continue to outperform.
Still, demand is expected to grow in China as new refineries ramp up activity, Falakshahi told Business Insider.
“All this means that we still expect Chinese demand for crude to increase year on year, but it’s not going to be huge,” he added.
“We expect [US production] to slow down, especially in the first half of the year,” Falakshahi said. “And that’s really linked to lower activity in the US.”
A lot of what drove the US oil boom this year was a strong increase in efficiency, which will be hard to repeat.
Kpler expects US crude oil output to dip to 13.14 million barrels a day, down from the record high of 13.3 million recorded earlier this month.
Meanwhile, Rapidan sees 2024 production at 13.3 million-13.4 million barrels a day, and Babin from CIBC said expects only small changes.
“I’m not afraid of that number of really doing another repeat of 2023,” she said.
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