Geopolitical tensions and ‘OPEC+’ decisions are the most impactful factors on oil trends during 2024

Oil analysts anticipate the continuation of fluctuations in crude oil prices at the beginning of the new year 2024, following a recorded annual decline of around 10 percent, the largest since 2020.

Regarding global oil supplies, analysts suggest that five factors, such as regional tensions, ‘OPEC+’ decisions, the size of American and Chinese demand, and disruptions in major shipping routes, are the most significant and influential in determining trends in the oil market for the new year.

Analysts point out that West Texas Intermediate crude oil prices on the New York Stock Exchange ended 2023 with a decrease of about 5 percent compared to the previous year, as markets look towards a global supply surplus in early 2024. It is expected to surpass the growth in supply from outside of OPEC, offsetting the slowdown in global demand growth in the coming year.

Analysts emphasized that even with the extension of ‘OPEC+’ voluntary production cuts into the new year, data shows that there is still an implicit surplus in liquids amounting to 2.2 million barrels per day in the first quarter.

Analysts cited data from Standard and Poor’s Global, indicating that global inventories increased in the latter months of 2023, and it is expected that construction activities will accelerate in early 2024, reaching their peak in May with the addition of approximately 150 million barrels before resuming withdrawals.

They added that despite the U.S. Energy Information Administration expecting a global production increase by a million barrels per day next year, most analysts anticipate prices to recover from current levels.

Ross Kendy, the Chief Executive Officer of QHA, an energy services company, told ‘Al-Eqtisadiah’ that fluctuations will continue as a key characteristic in the crude oil market in the new year due to the interplay and contradictions of influencing factors, as well as the difficulty in predicting geopolitical factors distant from the fundamentals of the oil market.

It is speculated that U.S. gasoline prices in 2024 could play a role in any decision by the administration of President Joe Biden to tighten sanctions related to crude oil, especially as the new year is an election year for the United States presidency, witnessing intensified efforts to attract voters. It is noted that there is enough global oil supply to give the United States some leeway to take new measures regarding Russia, Iran, and Venezuela.

On the other hand, Damir Tseprat, the Business Development Director at Technic Group International, states that the increase in U.S. oil production has bolstered global supplies, reducing the risks associated with tightening sanctions. He explains that the increase in supply places additional burdens on the ‘OPEC+’ alliance to regulate supply and reduce production to restore balance between supply and demand.

Quoting from Rapidan Energy,the company confirms that most analysts are concerned about additional overall risks surrounding the crude oil market in the new year. This requires further collaboration among producers to support the industry and market stability, suggesting that ‘OPEC+’ is likely to adhere to extending voluntary production cuts to counter broad increases from outside the producer alliance.

On his part, Peter Bakhr, an economic analyst and energy legal specialist, says that oil prices are poised to rise in 2024 amid a state of geopolitical uncertainty.

He explains that wars and other global tensions increase the risk of market shocks. He points out that most expectations lean towards a global increase in oil prices in 2024. However, the extent of the oil price increase is unpredictable because a significant degree of geopolitical uncertainty can easily surpass ordinary market variables. He notes that surplus production capacity limits potential shocks in oil prices, but the likelihood of oil prices rising still outweighs the possibility of a recession pushing them lower.

In turn, Arfi Nahar, an expert in oil and gas affairs at African Leadership International, says that the absence of stability and the escalation of wars in various parts of the world impact market stability, especially in crude oil. She points out that the war in Ukraine is entering its second winter with indications of a long-term impasse. Additionally, the visible tension between the United States and China continues, along with the conflict in Gaza.

She explained that the International Monetary Fund currently expects the global economy to grow by 2.9 percent in 2024. Most expectations for oil prices in 2024 are in the range of $90 per barrel. The U.S. Energy Information Administration anticipates that the average price of Brent crude will be $93 per barrel, an increase from the expected global average for 2023, which is $84 per barrel.

On the other hand, concerning prices at the end of last week, oil prices in 2023 concluded with the largest annual decline since 2020, approximately 10%, amid concerns related to the increase in supply in the market from non-OPEC record production.

Despite the escalating geopolitical tensions throughout 2023, oil prices recorded a year-on-year decline. The U.S. crude oil ended the year’s trading at $71.65 per barrel, losing around 10.73% over the year, marking its first annual decline since 2020. Similarly, futures contracts for Brent crude ended the year at $77.04 per barrel, experiencing a 10.32% loss over the year.

At the close of the year, on Friday, December 29, futures contracts for U.S. crude oil declined by approximately 0.17%, losing 12 cents to settle at $71.65 per barrel. Similarly, Brent crude futures dropped by around 11 cents or 0.14% to settle at $77.04 per barrel, amid weak activity on the last trading day.

The year 2023 witnessed sharp fluctuations in oil prices against the backdrop of geopolitical tensions that characterized the year. Developments related to production, including decisions by OPEC and its allies, as well as non-OPEC production, played a significant role.

Regarding projections for the current year, 2024, Andrew Lipo, the CEO of Lipo Oil Associates, stated that we can expect continued volatility as we enter 2024, with geopolitical events and concerns about the potential spread of conflict in the region. “OPEC+” is currently reducing production by around six million barrels per day, representing approximately 6% of global supply.

“OPEC” is facing a decline in demand for its crude oil in the first half of 2024, as its market share drops to the lowest level since the pandemic due to production cuts and Angola’s exit from the group.

A survey conducted by Reuters, collecting opinions from 34 economists and analysts, predicted that the average price of Brent crude would be $82.56 in 2024, a decrease from the November average of $84.43. They anticipate that global economic slowdown will limit demand, while geopolitical tensions could provide support.

On the other hand, the total number of active drilling rigs in the United States increased by two this week. A report by Baker Hughes on Friday stated that the total number of drilling rigs rose to 622 this week. Compared to the same time last year, Baker Hughes reported a loss of 157 active drilling rigs. The current number of rigs is 452 less than the number at the beginning of 2019, before the pandemic.

The report highlighted an increase in U.S. production by 1.377 million barrels per day, according to the latest data from the Energy Information Administration.

The report also noted a rise in the number of oil rigs by two, reaching a total of 500. The current count of oil rigs is down by 121 compared to this time last year, while the number of gas rigs remained unchanged this week at 120, representing a loss of 36 active gas rigs compared to the same time last year. Meanwhile, the miscellaneous rigs remained steady at two.