Introduction
Most forecasts indicate that global oil prices will rise in 2024. However, the extent of the oil price increase remains a mere educated guess amid widespread geopolitical uncertainty.
Global Tensions Increase the Threat of Market Shocks
The war in Ukraine has entered its second winter with no signs of movement in what has turned into a prolonged stalemate. The evident tension between the United States and China, the world’s largest oil importer, remains. Tensions in the oil-rich Middle East have escalated due to the recent clash between Palestinians and Israelis.
Best Forecasts for 2024
According to Fitch Ratings, if oil prices rise to $120 per barrel next year, it would result in a decline of 0.4 percent in global economic growth. The International Monetary Fund currently expects the global economy to grow by 2.9 percent in 2024.
Although most oil price forecasts for 2024 hover around $90 per barrel, the U.S. Energy Information Administration expects Brent crude oil prices, the global benchmark, to average $93 per barrel, compared to an average of $84 per barrel in 2023. Currently, Brent oil is trading near $80 per barrel. It fell to a low of $71.84 per barrel at the end of June before rising to a peak of $96.55 per barrel at the end of September after Saudi Arabia extended production restrictions.
Despite the renewed tensions in Israel that started in early October, Brent crude oil prices have fallen by about $10 per barrel last month. However, despite the EIA’s expectation that global production will increase by one million barrels per day in the next year, most analysts expect prices to rise from current levels.
Bank of America sees Brent crude prices averaging $90 per barrel in 2024, with West Texas Intermediate crude – the U.S. benchmark – expected to average $86 per barrel next year. Goldman Sachs expects Brent oil prices to average $94 per barrel next year.
Main Variables
The U.S. Energy Information Administration expects growth in production from non-OPEC countries to offset ongoing production cuts from OPEC, which would help maintain a “relatively balanced global oil market next year.”
According to Goldman Sachs, the available excess production capacity may limit the likelihood of a price shock in oil prices.
Bank of America agrees but noted in its energy forecast for 2024 that OPEC has reduced production since 2022 and is likely to continue doing so. The U.S. government is also providing greater support for oil prices: it stated it would begin refilling its strategic petroleum reserve when prices fall to $72 per barrel.
Despite ongoing concerns about the possibility of a recession, Bank of America sees further opportunities for oil prices to unexpectedly rise from their decline. It stated, “While the downside risks to prices are limited, upside risks to oil prices could emerge from tensions in the Middle East, the implementation of U.S. sanctions, and potential interest rate cuts from the Federal Reserve.”
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