Oil Prices in 2024: What to Expect from the Volatile Market

A look at the factors that will shape the global oil market in the coming year, from OPEC+ cuts to new refineries

by Victor Adetimilehin

The global oil market has been on a roller coaster ride in the past few years, with prices surging and plunging due to geopolitical events, supply disruptions, demand shocks and the strength of the U.S. dollar.

In 2024, oil investors will face a new set of challenges and opportunities, as the market balances between oversupply, slowing economic growth and simmering Middle East tension that could spark price volatility.

Here are some of the key factors to watch in 2024.

OPEC+ Compliance: Will the Cartel Stick to its Cuts?

One of the biggest drivers of oil prices in 2024 will be the level of compliance by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC, with their planned 2.2 million barrels per day (bpd) of combined voluntary output cuts.

The group, which includes Russia, agreed to the cuts in December 2023, in a bid to prevent a glut of oil in the first quarter of 2024, when demand is typically low. If the group sticks to its pledge, it could lead to a small deficit of less than 500,000 bpd in the global oil market, according to ANZ bank.

According to a report by Reuters, some analysts are skeptical about the group’s ability to maintain discipline, especially as oil prices rise and some members face domestic pressure to boost their revenues.

“The first quarter will be key because we can assess adherence to the OPEC+ voluntary supply cuts,” said Ann-Louise Hittle, an analyst at Wood Mackenzie.

She added that OPEC+ would not need to extend the new voluntary cuts beyond the first quarter based on Woodmac’s current demand forecast, but it could do so if required.

Wild Cards: Russia, Iran, Venezuela

Another factor that could affect oil prices in 2024 is the supply situation in some of the major oil-producing countries that face U.S. sanctions, such as Russia, Iran and Venezuela.

Russia, the world’s second-largest oil producer, has been under U.S. and European sanctions since 2014, when it annexed Crimea from Ukraine. The sanctions were tightened in 2022, after Russia invaded eastern Ukraine, sparking a war that disrupted its oil exports.

Despite the sanctions, Russia has managed to maintain its oil output at around 11 million bpd, thanks to its vast reserves and technological innovations.

Iran, the fourth-largest oil producer in OPEC, has also been under U.S. sanctions since 2018, when former President Donald Trump withdrew from the 2015 nuclear deal and reimposed harsh measures that crippled its oil exports.

Venezuela, once a major oil exporter, has seen its production collapse due to years of mismanagement, corruption and U.S. sanctions that targeted its state-run oil company PDVSA.

But in October 2023, Washington suspended the sanctions on PDVSA for six months, until April 2024, as part of a deal with President Nicolas Maduro’s government to hold free and fair presidential elections.

New Refineries: A Boost for Oil Demand?

While oil supply is expected to grow in 2024, so is oil demand, which hit an all-time high of more than 100 million bpd in 2023, driven by the recovery of the global economy from the pandemic-induced recession.

One of the factors that could support oil demand in 2024 is the addition of more than 1 million bpd of new refining capacity in China, India, Mexico, the Middle East and Nigeria, analysts said.

These include Chinese newcomer Yulong Petrochemical, expansions at India’s Panipat and Koyali refineries, Nigeria’s Dangote project and Mexico’s Dos Bocas.

However, the new refineries could also create a glut of refined products, particularly diesel, which has been in short supply since the Russian-Ukrainian war disrupted supplies from Europe.

This could put downward pressure on refining margins and product prices, and reduce the incentive for refiners to run at high rates, analysts said.

Analysts believe that the oil market will remain a vital and vibrant part of the global economy and society, providing energy, jobs and opportunities for millions of people around the world.

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