Here’s How Crude Oil Prices Could Rise – Wells Fargo

Crude oil prices have recently declined, but a shift may be on the horizon as US oil production is expected to slow down, according to insights from Wells Fargo.

After showing positive returns for most of 2024, year-to-date crude oil returns have dipped into the negative territory. The primary global benchmark price has fallen by 3.5%, while the main US benchmark, West Texas Intermediate (WTI), is down by 0.4% so far this year.

According to analysts at Wells Fargo, the retreat in crude oil prices can be attributed to a combination of demand and supply factors. The global economy has exhibited signs of slowing, which has affected demand, and there are growing concerns that the two largest oil producers—OPEC+ and the US—might ramp up production.

While acknowledging these concerns, Wells Fargo believes they are already reflected in current crude oil prices. Although global demand for crude oil has been weak throughout much of 2024, this decline does not seem to be escalating. This stability is crucial as global liquidity appears to be improving, highlighted by central banks starting to reduce interest rates.

On the supply front, both OPEC+ and the US are more inclined to reduce production rather than increase it, given that crude oil prices are trading in the $60s to $70s per barrel range. Recently, OPEC+ confirmed that it would not reverse the planned production cuts scheduled to begin in October 2024.

Additionally, in the US, Wells Fargo predicts that production growth will soon decelerate, as the average cost to initiate a new shale well is approximately $64 per barrel.

In summary, while crude oil prices have softened in recent months, there is speculation that they may strengthen soon. The major oil producers, OPEC+ and the US, currently have little motivation to increase production at the existing price levels.