Oil Forecasts Reduced for Fifth Consecutive Month Due to Demand and OPEC Uncertainty, Reports Reuters

By Sherin Elizabeth Varghese

Analysts have revised their 2024 oil price forecasts downward for the fifth consecutive month, attributing this to weakened demand and uncertainty surrounding OPEC’s future plans. According to a recent poll, oil prices are expected to remain under pressure, despite potential geopolitical risks.

The poll, which surveyed 41 analysts and economists over the last two weeks, indicates that oil is projected to average $81.52 per barrel in 2024. This marks the lowest forecast since February and a decrease from the $82.86 prediction made in August. Additionally, prices for West Texas Intermediate crude are expected to average $77.64, down from last month’s prediction of $78.82.

Roger Read, a Senior Energy Analyst at Wells Fargo, noted that the current weakness in oil prices can be attributed to market concerns about OPEC’s potential return of barrels to the market and declining demand indicators from China. Global oil demand growth for 2024 is now projected to be between 0.9 to 1.2 million barrels per day, down from earlier estimates of 1 to 1.3 million barrels per day.

Both OPEC and the International Energy Agency (IEA) have lowered their forecasts, citing a slowdown in Chinese demand. OPEC has revised its outlook for oil demand growth for the second time this year. Sehul Bhatt, Director of Research at CRISIL Market Intelligence and Analytics, highlighted that slower economic growth in major markets such as China and Europe, combined with expectations of weak demand, is keeping oil prices down despite geopolitical uncertainties.

Most analysts believe that the risk premium associated with war in oil prices has reduced due to a sufficient supply in the market. However, some warn that this premium could return if geopolitical tensions escalate, particularly in the Middle East. Florian Grunberger, a senior analyst at Kpler, indicated that if the situation in Gaza does not stabilize, we might see a resurgence of the risk premium in oil prices.

Earlier this year, oil prices climbed above $90 a barrel fueled by tensions in the Middle East and OPEC+ supply cuts. However, prices have significantly dropped, falling below $70 per barrel this month due to weak demand and an oversupply in the market.

OPEC+ is anticipated to proceed with a planned production increase in December, although output cuts are necessary to rectify the overproduction issue faced by some member nations. Mike Haigh, a commodity strategist at Societe Generale, predicted that the group would move ahead with the production increase, but cautioned that the disappointing demand outlook and increasing OECD commercial stocks mean that complete unwinding of cuts might not be feasible, leading to potential price deterioration.

Presently, OPEC+ is implementing cuts of 5.86 million barrels per day, representing approximately 5.7% of global demand. Earlier this month, the coalition delayed its plans to increase output after oil prices hit a nine-month low.