Industry executives and hedge fund managers assert that the OPEC+ coalition has reestablished its dominance over the oil market, wielding the capability to induce significant tightening in the latter part of the year. Anticipations of robust global demand growth coupled with supply limitations, including production cuts by OPEC and Russia, are bolstering bullish sentiments, propelling prices higher as Brent crude surpasses $90 per barrel. Investment banks speculate further upside potential amidst tightening markets and escalating geopolitical tensions, not discounting the possibility of oil reaching $100 this year.
Sebastian Barrack, Head of Commodities at Citadel, a hedge fund managing $61 billion in investment capital as of April 1, underscores the pivotal role of the OPEC+ alliance in shaping oil price trajectories. Speaking at the FT Commodities Global Summit in Lausanne, Switzerland, Barrack affirms that the OPEC+ coalition has decisively regained control over the market. He suggests that maintaining current production cuts beyond the first half of the year could lead to an “extremely tight” oil market in the latter half, emphasizing that the alliance’s decisions in June will profoundly influence price movements over the next twelve months.
Geopolitical concerns in the Middle East, resilient demand, and supply constraints spanning from Mexico to Russia are contributing factors to the upward trend in oil prices. Top traders, forecasters, and investment banks have revised their price and demand outlooks upwards in recent weeks, with projections ranging between $80 and $100 per barrel for this year, according to Russell Hardy, CEO of Vitol Group, the world’s largest independent oil trader. Hardy also anticipates robust global oil demand growth in 2024, approaching 1.9 million barrels per day higher than in 2023.
The U.S. Energy Information Administration (EIA) has adjusted its forecasts for global oil consumption in 2024 and 2025, citing revised historical data for 2022 and prevailing market dynamics. Morgan Stanley forecasts heightened geopolitical risks driving Brent prices to $94 per barrel in the third quarter, with recent revisions increasing their third-quarter price projection by $4 per barrel. Meanwhile, JP Morgan suggests the potential for oil prices to reach $100 per barrel by summer’s end, albeit with concerns over demand destruction.
Analysts and industry insiders speculate on OPEC+’s response to soaring prices, with expectations that the coalition would consider easing production cuts to prevent excessive price escalation, mitigate responses from U.S. shale producers, and safeguard long-term demand for OPEC+ crude. Barrack warns that if production cuts are extended beyond June, the resultant market tightness could necessitate high prices to curb demand, potentially presenting challenges to sustainability.
While the allure of selling oil at $100 per barrel may be enticing for OPEC, considerations regarding potential inflation shocks and demand repercussions temper such ambitions. OPEC’s reluctance to risk adverse impacts on demand underscores the delicate balancing act it faces in managing oil market dynamics.