How long will oil prices stay this high? Will the world plunge into stagflation?

The price of WTI crude oil has increased by almost 30% in three months, which means that its price is higher by less than 7% per year. This, in turn, reverses the positive base that we had on the oil market until the holidays, which also had a positive impact on the increasingly lower CPI inflation readings. Now things are starting to take a completely different turn, making a 180-degree turn thanks to the policies of Saudi Arabia and Russia, which probably want to plunge Western countries into stagflation by reducing production.

Oil market: what are the forecasts for prices in the near future?

Saudi Arabia announced on September 5 continued voluntary cuts in oil production at 1 million barrels per day (b/d) by the end of this year. What does this mean for global oil prices and what trends can we predict in the coming months?

First of all, the extension of these oil production cuts by Saudi Arabia points to an expected reduction in global oil stocks in the coming period. This, in turn, may result in an increase in oil prices. The EIA forecast suggests that in the fourth quarter of 2023 the price Brent oil will average $93 per barrel. However, what next?

According to forecasts in 2024 oil prices will tend to decline. This is mainly the result of growing oil reserves, as well as a slowdown in the growth of demand for it and the end of voluntary production cuts by Saudi Arabia. The price of Brent crude oil is expected to average $88 per barrel next year.

It is worth noting that the price of crude oil increased in August, reaching an average value of $86 per barrel. This is the result of Saudi Arabia extending voluntary production cuts and a decline in US commercial crude oil inventories to levels not seen since December 2022.

Cuts in oil production

Current analysis suggests global crude oil inventories will decline by 0,6 million barrels per day in the third quarter of 2023. In the fourth quarter of 2023, the pace of inventory decline will slow to 0,2 million barrels per day, but will still remain relatively low. OPEC + continues to cut oil production, leaving global production below global demand. As a result, the EIA predicts that the price of Brent crude oil will remain above $90 per barrel through the first quarter of 2024 to average $87 per barrel in the remaining three quarters of next year.

It should be noted, however, that there is potential for continued voluntary production cuts, which may pose a risk of an increase in oil prices. It is worth monitoring the developing situation on the oil market, and investors and energy consumers should be prepared for changing conditions on this market.

In summary, Saudi Arabia's extension of oil production cuts has had a short-term impact on oil price increases, but future prospects point to the potential for price declines. Otherwise, OPEC and Russia will push the world into stagflation, and this may result in an escalation of geopolitical tension.