The U.S. Energy Information Administration (EIA) anticipates a surge in oil prices in 2024, despite a slight dip in global oil demand, as production cuts by OPEC+ members start to significantly impact the market, according to its October Short-Term Energy Outlook.
While the EIA has trimmed its global oil demand forecast for 2024 by 90,000 barrels per day, it predicts a price escalation. The agency’s revised projections suggest Brent crude will reach an average of $94.91 per barrel, an increase of $6.69 from its previous estimate. West Texas Intermediate (WTI) crude is also expected to climb, averaging $90.91 per barrel in 2024, which is $7.69 higher than last month’s prediction.
These price hikes are attributed to expected reductions in OPEC+ oil production, which the EIA estimates will drop by 340,000 barrels per day in 2024, hitting 37.84 million barrels per day. This decrease comes on the heels of a 1.39 million barrels per day fall in 2023, somewhat counterbalanced by a 2.7 million barrels per day increase from non-OPEC producers.
Despite these production cuts, global oil demand is projected to continue growing, reaching 100.92 million barrels per day in 2023 and 102.24 million barrels per day in 2024, albeit these figures are slightly lower than previous forecasts.
The tightening oil market is already evident, with oil prices having risen in September following Saudi Arabia’s decision to prolong its voluntary oil production cuts. These, coupled with other OPEC+ members’ reduced output, are anticipated to constrain global oil supply significantly. As a result, demand is expected to outstrip production in the latter half of 2023 and for a substantial part of 2024, exerting upward pressure on prices.
While the EIA has marginally altered its oil price estimates for 2023, it observed a near $20 increase in Brent crude prices over three months up to September 2023, with averages hitting $94 per barrel.
Continued inventory draws are expected into the first quarter of 2024, balancing out thereafter as consumption growth slows down and production picks up pace. The EIA also adjusted its 2023 projection for U.S. oil production upwards by 140,000 barrels per day, expecting further growth into 2024.
However, these forecasts are subject to several variables, including the potential for supply disruptions, unexpected changes in OPEC+ production, fluctuations in U.S. drilling rig counts and well efficiency, and shifts in the global economic climate. The ongoing conflict between Israel and Hamas also adds an element of uncertainty to the market.
