Commodities

Oil Market Remains Poised for Tightening in Second Half of 2024

Several major energy agencies have recently adjusted their projections for oil supply and demand for this year and next. Despite these revisions, they maintain that the crude oil market is likely to tighten in the latter half of 2024, according to UBS analysts.

The adjustments include a cautious outlook from the International Energy Agency (IEA), which forecasts slower demand growth; an optimistic revision from the Energy Information Administration (EIA), which anticipates increased demand; and a neutral stance from the Organization of Petroleum Exporting Countries (OPEC).

Analysts at UBS noted that the extension of OPEC+ voluntary production cuts suggested continued market tightness through the remainder of the year, assuming only minor increases in OPEC+ output.

This month, the agencies presented mixed changes to their demand growth forecasts: the IEA lowered its projections, the EIA raised its figures, while OPEC opted to keep its forecasts steady. The IEA’s downward adjustment was attributed to weaker demand from OECD countries and base effects, whereas the EIA acknowledged mediocre OECD demand but increased forecasts due to a rise in bunker fuel demand resulting from disruptions in the Red Sea.

In light of these developments, UBS has slightly reduced its demand growth estimates to 1.1 million barrels per day (Mb/d) for 2024 and 1.0 Mb/d for 2025.

On the supply front, forecasts for non-OPEC+ production remained largely unchanged, with the exception of the EIA’s growth estimates for 2024, which increased by 0.1 million b/d due to better-than-anticipated U.S. supply in the first half of the year.

Despite OPEC+ plans to gradually ease voluntary production cuts, potentially starting in October 2024, UBS anticipates that OPEC+ barrels may not return until the second quarter of 2025 when market conditions support a gradual increase.

In the short term, UBS expects oil prices to rebound into the mid to high $80s, bolstered by the extended OPEC+ cuts and seasonal demand increases. They foresee Brent crude prices reaching around $80 per barrel next year as OPEC+ begins to gradually restore production.

UBS does project some negative effects on oil demand due to slowing GDP growth and rising prices but continues to anticipate overall demand growth until the late 2020s. However, demand growth is expected to slow significantly, reaching around 0.5 Mb/d within three to four years, with peak oil consumption projected by 2029. Despite this slowdown, average global spare capacity is likely to remain stable compared to historical levels.

In the near term, the primary upside risks could stem from tightening supply conditions. Extended OPEC+ production cuts, potential declines in Russian output, and strong demand could drive Brent crude prices above $90 per barrel. Further escalation in geopolitical tensions, especially in the Middle East, could push prices closer to $100 per barrel.

On the downside, UBS’s outlook suggests that a more significant economic slowdown could dampen oil demand by approximately 1.0 Mb/d compared to their current forecasts. This scenario, combined with a reduced geopolitical risk premium, could lead to Brent crude prices falling below their long-term target of $75 per barrel.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker