The Oil Market: Looking Ahead into 2024

Here are some of the issues facing the oil market in 2024.

First a recap of crude oil prices: On December 30, 2022, WTI settled at $80.26 . On Friday, December 29, 2023, WTI settled at $71.65 per barrel, down 10.7% year on year. However in between, WTI settled as low as $66.74 on March 17 and as high as $93.68 on September 27. The only thing certain for 2024 is continued volatility in oil prices.

On January 1, 2023, the national retail average gasoline price was $3.208, on January 1, 2024, it was $3.110

Looking Ahead to the USA in 2024

It’s an election year in the USA. The Administration is focused in on gasoline prices. This is a pocketbook issue affecting American’s perception of the economy and inflation. Will the Administration continue to tread lightly on sanctions that have been imposed on Russia, Iran in Venezuela to keep oil supplies flowing and prices at the pump reasonably low? After all, the national average is flirting with $3.00 per gallon.

I expect the Administration to continue with its policy of purchasing 3 million barrels per month of crude oil to refill the Strategic Petroleum Reserve (SPR) touting what a good deal they did for the consumer in 2022 when they sold SPR Oil for $95. At the rate of 3 million barrels per month, it would take 10 years to fill the SPR. SPR purchases are limited as many locations are undergoing maintenance, but once some of that work is completed, look for the Administration to increase the amount of oil they buy.

USA oil production surprised to the upside reaching 13.3 million barrels per day in the latest weekly Energy Information Administration statistics, up from 12.1 million barrels per day in December 2022. Will this be sustainable with the USA Baker Hughes rig count down 20% or 157 rigs to 622 this week?? The number of drilled but uncompleted wells (DUCs) is down from 8883 in June of 2020 to 4415 in November 2023. What happens when the inventory of DUCs is depleted?

Looking Ahead to OPEC in 2024

After announcing a 2.2 million barrel per day production cut on November 30, oil prices continued to fall.? Angola left OPEC in December.? Can OPEC, in their eyes, stabilize, meaning achieve higher oil prices by continuing with their production cuts and for how long? I think they will maintain these cuts at least through the end of March.

This is happening at the same time OPEC+ has the most optimistic oil demand growth for 2024 at 2.2 million barrels per day. The International Energy Agency December Oil Market Report forecast is less than half that at 1.1 million barrels per day. China is the largest contributor to oil demand growth, with estimates of only a 4% increase in 2024 after increasing more than double that in 2023. This growth depends on their economy which is being weighed down by a property crisis domestically. Slowing economic growth outside of China is leading to less demand for their manufactured goods. The Chinese Purchasing Manager Index slid to 49 in December.

Looking Ahead to Geopolitics in 2024

The war between Israel and Hamas has not caused any oil supply disruption yet. Attacks by Houthi rebels on tankers in the Red Sea is causing a re-routing of some supplies, increasing tanker rates and cost. It is very concerning that these attacks have spread to a chemical tanker, the Chem Pluto, 370 kilometers off the coast of India, far from the conflict zone. The USA is leading a protection force in the Red Sea called Operation Prosperity Guardian. Iran has just sent a warship into the Red Sea. I believe the Galaxy Leader, which was hijacked November 19, is still in Yemen. Could a mistake be made leading to a regional spread involving Iran, the USA, and others?

It’s been over a year since the USA and the EU imposed sanctions on Russian crude oil. The EU has imposed sanctions on Russian refined products in February 2023. Russia has found new customers for its crude oil, albeit at discounted price and is very dependent on China, India, and some others for those sales. Russian diesel is flowing to India, North Africa, the Middle East, Brazil and elsewhere. The net effect is that Russia is getting less money for its oil at the same time the oil continues to flow weighing on world oil prices.? Expect this to continue in 2024.

Iran has been increasing its oil production and exports and in November the Oil Minister said that production would rise to 3.6 million barrels per day by March. Will the USA reimpose sanctions on Iran given their backing of Hamas, Hezbollah and the Houthis, limiting oil exports and perhaps raising world oil prices?

Venezuela has instigated a territorial dispute with Guyana. Probably to deflect Venezuelan President Maduro’s domestic problems while seeking the oil reserves that Guyana is exploiting with a rapid increase in production. Venezuela held a referendum on December 3 claiming the Essequibo Province was theirs and then sent 5600 troops to the border.? A British warship arrived on December 29 in support of Guyana. Could this result in the re-imposition of USA sanctions on Venezuela? It has not happened yet.

Looking Ahead to Climate Change Impacts in 2024

The drought in Panama resulted in the Canal Authority limiting the number of daily transits. (The water for the locks is not supplied from the oceans but rather from rainfall). This is impacting freight costs on all commodities including LNG, which in many cases is be re-routed but, in some cases, once loaded in the USA, LNG is now sold into Europe rather than Asia.

There were no major hurricanes that impacted USA oil production and infrastructure in 2023. Was this the exception, or is it the new normal that hurricanes are now occurring further to the east and in the mid-Atlantic?

In 2024, renewable fuel use will continue to increase. In California, diesel fuel made from biomass is set to displace nearly 80% of that state’s fossil fuel diesel by the end of 2024. The European Union Emission Trading System goes into effect in 2024 requiring vessel owners to burn cleaner fuel. One is likely to hear more about Sustainable Aviation Fuel (SAF) being developed to replace jet fuel produced from crude oil.

Despite electric vehicle sales, it will be another year of oil growth in oil demand. Peak oil will not be with us in 2024.

Looking Ahead to my oil price Forecast in 2024

One year from now, I expect WTI to be between $83-$87 per barrel, in the meantime trading between $67 and $93. For the entire year, the national average price of gasoline will be less than $3.50 per gallon, peaking at $3.75 late summer. If you are in California, gasoline prices will be about $1.50 higher than the national average.