Oil prices will not change much in the second half of 2024 as concerns about demand from China and prospects for increased supplies from major producer’s counter risks from geopolitical tensions.
Brent crude is expected to average $83.93 per barrel in 2024, slightly below the average of $84.01 in the previous month’s survey. The forecast for the average U.S. crude price in 2024 at $79.72 a barrel was slightly higher than the May poll of $79.56.
Brent crude futures have averaged $83.4 so far in 2024, after brief hikes to $92.18, driven by supply risks due to conflict in the Middle East.
Away from the hype, oil prices seem stuck in a sideways trend, with supply and demand providing little direction and storage levels moving well within seasonal benchmarks.”
However, some analysts said prices could jump to $90 and possibly more, depending on a variety of factors including summer consumption, the geopolitical situation in the Middle East, and production restrictions from the Organization of the Petroleum Exporting Countries (OPEC).
Analysts expect oil demand to grow by 0.99-1.4 million bpd in 2024, slightly above the Paris-based IEA’s forecast of 0.96 million bpd. On the supply side, most analysts have pointed out that crude oil production from non-OPEC countries is rising..
If OPEC+ goes ahead with a gradual reduction of current production cuts from October, the market could move to a small surplus by the end of 2025.
Earlier this month, OPEC and its allies led by Russia, known as OPEC+, chose to slowly roll back production cuts of 2.2 million bpd over a year beginning in October, while extending further cuts of 3.66 million bpd until the end of 2025..
Oil prices rise for third week on expectations of interest rate cuts and supply concerns
Oil prices continued their upward trajectory on Friday, recording gains for the third consecutive week. The rise was driven by growing expectations that the US Federal Reserve may soon start cutting interest rates, along with concerns about potential supply disruptions due to geopolitical conflicts in Russia and the Middle East. Traders currently expect a 64% chance of making the Fed’s first cut in September, up from 50% a month ago. Increased bets around a rate cut in September, and two by December, are likely to weigh on Treasury yields and the U.S. dollar, allowing oil prices to continue to march north.
Brent crude futures for August settlement, which are due to expire on Friday, rose 64 cents, or 0.74%, to $87.03 a barrel. The most traded September Brent contract rose 0.67% to $85.83 a barrel. U.S. West Texas Intermediate crude futures for August delivery also saw a rise of 68 cents, or 0.83%, to $82.42 a barrel. Both benchmarks have gained around 2% this week, with monthly increases just over 6%.
Market participants are keeping a close eye on US personal consumption inflation data, the Fed’s preferred measure of inflation As the price market looks for two rate cuts from the Fed by the end of this year, the price data will serve as checking whether the outlook is overly pessimistic.
The prospect of imminent rate cuts by the Fed has ignited a wave of risk in the stock markets. Traders currently expect a 64% chance of making the Fed’s first cut in September, up from 50% a month ago.Increased bets around a rate cut in September, and two by December, are likely to weigh on Treasury yields and the U.S. dollar, allowing oil prices to continue to march north.
Factors affecting low interest rates and geopolitical turmoil on oil markets
Lower interest rates could boost oil demand as borrowing costs fall, potentially stimulating economic activity and consumer spending. In addition, a recovery in actual refining margins supported oil markets, with refining margins at the Singapore complex averaging $3.60 per barrel in June, up $1 from May.
Despite the overall positive sentiment, political uncertainty in France has trimmed the gains slightly, as it is likely to affect oil demand in the region.
On the geopolitical front, oil prices have been boosted by fears of supply disruptions due to tensions in Russia and the Middle East. Brent and WTI contracts rose more than 6% each in June, as concerns about a wider conflict in the Middle East and attacks by Ukraine on Russian fuel refineries heightened market concerns about potential crude supply disruptions .
Moreover, adverse weather conditions, including heavy rains in Ecuador and a looming hurricane on the Gulf Coast, have increased the likelihood of additional supply disruptions. Adding to these concerns, the U.S. Senate Budget Committee has launched an investigation into 14 domestic producers over possible coordination with the Organization of the Petroleum Exporting Countries (OPEC) to manipulate oil prices.
OPEC has repeatedly cut output over the past year in a bid to stabilize oil prices, although these measures have provided only limited support to crude markets. However, prices received a boost when the cartel announced after the June meeting that it would maintain current production levels to ensure price support until 2024.
