Oil with a chance to rise above USD 80. The question is, with or without the holiday lows test?

According to U.S. Energy Information Administration (EIA) Brent crude oil prices will remain stable in 2024, reaching an average of USD 82 per barrel. This forecast reflects almost unchanged prices compared to 2023. However, in 2025, a slight decline to USD 79 per barrel is expected. The reason for this phenomenon is said to be a slight outpouring of production growth over demand growth, which will lead to a moderate increase in inventories and a slight reduction in prices. However, for the price to have an average level of USD 82, it must start the year below this price, and later in the year it must be above it. Hence the assumption that in the period March-June 2024, oil prices will be above USD 80, and perhaps reach USD 85-86 per barrel. The only open question is whether oil will reach another low near USD 64 before perhaps moving up?

Risk from the Middle East

EIA also draws attention to recent developments in the Middle East, which increase the risk of supply disruptions. Such disruptions could lead to higher and more volatile prices than currently forecast.

The role of OPEC+ in maintaining prices

Determining the impact of OPEC+ (Organization of the Petroleum Exporting Countries and 10 other countries cooperating since late 2016) on the market, EIA indicates that about half of global oil production comes from these countries. OPEC+ plays a key role in keeping prices stable by limiting production. EIA forecasts that production oil by OPEC+ will average 36,4 million barrels per day in 2024 and increase to 37,2 million b/d in 2025, which is still lower than the pre-pandemic average of 40,2 million b/d. It is worth noting that Angola left OPEC in January 2024, which will impact overall production figures.

A response to weakening global demand

In response to falling global demand and oil prices, OPEC+ decided to lower production targets last year. The latest agreement, announced on November 30, included additional voluntary production cuts until March 2024, continuing the group's previous actions.

Increase in global oil consumption

Despite the slower pace, global oil consumption continues to grow. This growth is mainly driven by economic recovery and a return to pre-pandemic travel patterns, especially in international aviation. According to the EIA, global oil consumption will increase by 1,4 million b/d in 2024 and by 1,2 million b/d in 2025, although this will be below the 10-year pre-pandemic average.

To sum up, the EIA analysis indicates relatively stable Brent oil prices in 2024, with a potential decline in 2025. Factors such as OPEC+ activities, global economic growth and oil consumption, as well as geopolitical instability in the Middle East, will be key in shaping future price trends in the oil market, and to achieve an average annual price of USD 82 later in the year the price would need to be above $82.