Key Insights
- Oil failed to gain sustainable momentum in 2024 amid demand worries.
- Stronger-than-expected economic growth, OPEC+ production cuts, and geopolitical risks could drive oil prices higher.
- The growth of U.S. oil production is a key risk factor in 2024.
Oil markets gained some ground in 2024 but failed to develop sustainable upside momentum despite rising tensions in the Middle East. Nevertheless, I remain bullish on oil. Here’s why.
Demand For Oil Is Growing
IEA has recently raised 2024 global oil demand forecast to 1.24 million bpd. OPEC expects that demand would grow by 2.25 million bpd. The difference in forecasts is not surprising as OPEC represents oil producers while IEA is an organization of oil consumers. Therefore, OPEC is inherently bullish and IEA is bearish on oil demand. Importantly, both organizations expect that demand for oil would grow despite recession worries.
OPEC+ Will Maintain Production Cuts
There are no signs indicating that OPEC+ will make any changes to its production policy unless oil prices stabilize above the $90 level. The key OPEC+ countries, Saudi Arabia and Russia, need high oil prices to support their economies. They have learned the lessons of the past, when they have engaged in price wars with poor results, and proceed cautiously.
U.S. And China Would Boost Oil Demand
The recent economic data indicates that U.S. economy is much stronger than previously expected. Recession fears have not materialized, and the Fed may be foreced to keep the rate at current levels because the economy is too strong. China’s situation is more challenging, but the country’s government looks ready to provide material support to the economy. Ultimately, these measures would work, which would be bullish for oil.
Geopolitical Risks May Increase
Oil markets have mostly ignored rising tensions in the Middle East. Houthis’ attacks on ships have sometimes provided support to oil prices but did not lead to a strong rally. However, traders should note that the Operation Prosperity Guardian, which was announced in December 2023, has not achieved any results since Houthis’ attacks were not stopped. At some point, the countries may be forced to do more in order to boost vessels’ safety in Red Sea.
Key Risk Factor: U.S. Production
The recent reports from Chevron and Exxon Mobil showed that both companies planned to ramp up production from the Permian Basin. Other companies may follow their example, boosting U.S. production and putting pressure on oil prices.
Despite this risk, I believe that WTI oil and Brent oil have solid chances to gain sustainable upside momentum from current price levels.
For a look at all of today’s economic events, check out our economic calendar.
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