Crude oil prices had dramatic fluctuations in 2023 before falling 10% for the year, and further volatility is possible in 2024.
The primary variables driving oil markets have given large shocks in the last year, and they will be major sources of uncertainty in the next year.
According to experts, the following factors might disrupt the oil market, ranging from OPEC’s loss of price control to China’s economic downturn.
The cartel has failed to support oil prices by decreasing output, in part because non-OPEC nations such as the United States, Brazil, and Guyana have continued to fill the void. Moreover, new commitments from OPEC+ to prolong cuts till early 2024 have fallen short.
“I don’t want to say they’re out of ammo, but they’re kind of out of ammo,” Rebecca Babin, senior stock trader at CIBC Private Wealth, told Business Insider.
Analysts are questioning its capacity to collaborate and control the market. OPEC’s previous meeting in November was tumultuous, with members unable to reach an agreement on cutbacks. Angola announced its withdrawal from the organization earlier this month.
“I think the main risk for the market is OPEC cohesion or lack thereof potentially as well,” said Hunter Kornfeind, an oil analyst at Rapidan Energy.
Kingdom of Saudi Arabia
Traditionally, OPEC’s de facto leader has intervened to restore order to the oil group and the entire market. One energy expert has warned that Saudi Arabia may engage in a market share war with the United States next year in order to retake control of oil pricing.
However, Riyadh may have other interests that prohibit it from increasing production to drive down prices and profits, driving other suppliers to abandon the market.
According to Homayoun Falakshahi, an energy expert at research firm Kpler, Saudi Arabia has a lot of large infrastructure projects coming up before the end of this decade.
The kingdom will host the Asian Winter Games in 2029, the 2030 World Expo, and the 2034 FIFA World Cup, all of which will cost a lot of money, and the country’s budget is heavily reliant on oil.
The world’s largest oil importer has been roiled by a real estate slump a financial crisis and weak growth from COVID all of which have slowed consumption.
Babin recently stated that the oil market’s main issue in 2024 would be uncertainties about China’s economy, followed by anxiety that US production will continue to outperform.
Nonetheless, demand in China is projected to rise as new refineries begin operations, according to Falakshahi.
“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 said.
The US supply
In 2023, increasing US production took markets off guard, allowing non-OPEC countries to grab market share from Saudi Arabia. Analysts, however, do not expect such surprises to occur again next year.
“We expect [US production] to slow down, especially in the first half of the year,” he added. “And that’s really linked to lower activity in the US.”
Much of what propelled the US oil boom this year was a significant boost in efficiency, which will be difficult to replicate.
Kpler forecasts a drop in US crude oil output to 13.14 million barrels per day, down from a record high of 13.3 million earlier this month.
Meanwhile, Rapidan forecasts 2024 output at 13.3 million-13.4 million barrels per day, with CIBC’s Babin expecting only minor fluctuations.
“I’m not afraid of that number of really doing another repeat of 2023,” she went on to say