In the latest projections released by the US Energy Information Administration (EIA), it is anticipated that the average annual crude oil prices for 2024–25 will mirror those of 2023, maintaining stability in the global oil market. The estimates further reveal a delicate equilibrium between global supplies and demand for petroleum liquids over the next two years.
According to the EIA’s assessments, crude oil prices are poised to experience an upward trajectory, climbing from $78 per barrel (bbl) in December 2023 to $85/bbl by March 2024. This anticipated increase is attributed to the ongoing production cuts implemented by the OPEC+ alliance, leading to a global drawdown of 810,000 barrels per day during the first quarter of 2024.
However, recent market dynamics have seen a shift, as on 8 January, oil prices witnessed a decrease of over 3%. This downturn was influenced by substantial price reductions initiated by Saudi Arabia, the top oil exporter, coupled with a surge in OPEC output. These developments helped counterbalance concerns about supply disruptions arising from escalating geopolitical tensions in the Middle East.
The OPEC+ coalition, in its most recent meeting on 30 November, reached a consensus to voluntarily cut production by 2.2 million barrels per day until March 2024. These reductions, building upon prior production targets set in June 2023 and existing voluntary cuts, are anticipated to result in OPEC+ producing below its declared targets throughout 2024, according to the EIA.
In response to these market dynamics, the price of Brent crude oil experienced a decline of 3.4%, settling at $76.12/bbl, while US West Texas Intermediate (WTI) crude futures dropped by 4.1%, closing at $70.77/bbl, as reported by Reuters.
The first week of 2024 witnessed growth for both Brent and WTI contracts, each registering an increase of over 2%, primarily attributed to heightened geopolitical tensions in the Middle East, notably the attacks on ships in the Red Sea by Iran-backed Houthi rebels in Yemen.
Edward Bell, Head of Market Economics at Emirates NBD, commented on the market’s performance, stating, “Oil prices capped a choppy week with gains on Friday helping to give both Brent and WTI a positive start to the year.” He emphasized the ongoing geopolitical anxiety regarding the security of supply, coupled with disruptions to Libya’s supply, as factors counteracting softening demand conditions.
Adding to the complexity of the market, Saudi Arabia announced a reduction in the official selling price of its flagship Arab Light crude to Asia in February, marking its lowest level in 27 months. This adjustment was attributed to increased supply and heightened competition from other exporters, as reported by Reuters.
Looking ahead, the EIA projects a decline in OPEC+ crude oil production from 37.1 million barrels per day in 2023 to 36.4 million in 2024. Simultaneously, expectations point towards a subsequent increase, bringing OPEC+ production to around 37.2 million barrels per day. The EIA also forecasts non-OPEC+ production to average 53.0 million b/d in 2024 and 53.9 million b/d in 2025, fueled by a projected uptick in US production by 0.4 million barrels per day in both 2024 and 2025.