Andreas Anastasiadis
March 15, 2024
The latest EIA report supported bullish expectations for Brent futures for this year and the next, increasing the 2024 average price to $87/barrel from the previous month’s expectation of $82/barrel. In the upcoming year, the EIA projects the crude oil benchmark to average $85 per barrel, reflecting a 6.7% rise from the agency’s previous forecast of $79 per barrel made last month. The main drivers are the persisting uncertainty and heightened risk stemming from attacks on commercial ships navigating the Red Sea, coupled with the expected prolongation of voluntary OPEC+ production cuts, formally declared in early March. The EIA anticipates that the current tightening of the oil market balance will sustain Brent prices above present levels for the remainder of this year. However, the increase in inventories next year, prompted by OPEC+ gradually easing its production cuts towards year-end, is expected to exert downward pressure on prices. The Brent-WTI front month spread is given below (Figure 1).
Figure 1: Brent-WTI front month spread
Controversially, OPEC+ retains optimism regarding strong oil demand growth for the current and following years, buoyed by improving economies and additional upside potential in global economic expansion. According to OPEC+ forecasts, the global economic growth for 2024 averages close to +2.8%, while for 2025 the economic growth projection was kept unchanged at 2.9%.
OPEC+ members support the idea that an increase in real income levels, enhanced consumer purchasing power, and projections of major central banks initiating interest rate cuts this year will contribute positively to global economies. Furthermore, China and India may offer additional momentum to global economic growth for the current and following year. OPEC maintained its oil demand growth projections in line with the previous month’s report, foreseeing a “robust” expansion of 2.2 million barrels per day (bpd) in global oil demand for 2024, with an additional annual growth of 1.8 million bpd anticipated for 2025.
In the short term there is some promising activity in oil markets. However, neither US inflation data nor the monthly OPEC report has disturbed the stagnation of oil prices as NYMEX Brent remains steady around $82. The conclusion of US refinery maintenance, alongside stronger-than-expected demand metrics, could emerge as notable trends. Simultaneously, drone strikes on Russian refineries may tighten diesel markets. The anticipation for a shift in sentiment persists.