Oil investors to usher in 2024 amid oversupply, demand concerns

Oil investors will usher in 2024 with gnawing concerns about oversupply, slowing economic growth and simmering Middle East tension that could spark price volatility.

Benchmark Brent has averaged around $80 a barrel this year, after a volatile 2022 in which prices surged above $100 after Russian supplies were disrupted following the start of the Ukraine war.

Prices have been capped by a strong dollar and robust non-Opec output despite demand hitting an all-time high of more than 100 million barrels per day (bpd).

A Reuters survey of 30 forecasts from economists and analysts sees Brent crude averaging $84.43 a barrel in 2024.

Those expectations come despite demand growth forecasts which range from 1.1 million bpd by the International Energy Agency to 2.25 million bpd expected by the Organisation of the Petroleum Exporting Countries (Opec).

Supply in 2024 is expected to grow by between 1.2 million and 1.9 million bpd, driven by non-Opec producers, say consultancies Rystad Energy, J.P. Morgan, Kpler and Wood Mackenzie.

We’re looking for an oversupplied market every quarter of next year,” said Vikas Dwivedi, a global energy strategist at Macquarie.

Here’s a look at the key factors to watch in 2024.

Opec+ compliance:

Investors are eyeing first-quarter supply data to see whether Opec and its allies, known as Opec+, followed through on their planned 2.2 million bpd in voluntary output cuts. If the group complies, it could lead to a small deficit of less than 500,000 bpd, ANZ said.

WoodMac’s Ann-Louise Hittle said: “The first quarter will be key because we can assess adherence to the Opec+ voluntary supply cuts.” Opec+ would not need to extend their voluntary cuts beyond the first quarter based on Woodmac’s current demand forecast, she added.

Energy Aspects expects Saudi Arabia to taper its cut over the second quarter after it referred to restoring supply gradually, but added that did not prevent Saudi from extending its cuts in full again if required.

Wild cards — Russia, Iran, Venezuela:

Venezuelan oil has returned to global markets since Washington suspended sanctions on the Opec producer for six months, until April.

Another six-month extension is likely as long as President Nicolas Maduro’s government sticks to an electoral roadmap agreed with the opposition for a presidential election, JP Morgan analysts said.

“Late 2024 presidential elections in both countries would determine the longer-term fate of U.S. sanctions and Venezuelan oil production,” they added.

The lifting of sanctions on state-run oil company PDVSA will gradually increase Venezuelan oil output from 760,000 bpd in 2023 to 880,000 bpd in 2024 and 963,000 bpd in 2025, JP Morgan said.

The resumption of Venezuela’s heavy crude supply to the United States and India may dampen demand for rival grades such as Iraq’s Basrah Heavy and Canada’s Cold Lake, traders said.

More US crude could be available for exports to Asia as Gulf Coast refiners process more Venezuelan oil, they said.

“India is arguably in the best position ... so the relative profitability of Indian operations will improve even further,” said Kpler analyst Viktor Katona.