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What is the oil price forecast for 2024?
According to a fresh projection by industry experts, consumers can expect to save on their energy bills in 2024. The latest analysis by the ISG oil price forecast shows a slowdown in demand for oil, resulting in the commodity trading at a reduced price of between $70 and $100 throughout next year.
The news follows a sharp bump in the price of oil following volatility around a key Red Sea shipping lane, the Strait of Hormuz. Attacks by Houthi rebels from Yemen on shipping vessels in the region forced some diversions, prompting a 3.5 per cent spike in the price of crude.
In response to the attacks, BP announced on Monday, December 18th, that they initiating what the firm described as a ‘precautionary pause subject to circumstances.’ However, leading analysts predict this short-term volatility will remain just that – short-term. Speaking in a client call, ISG analysts said:
“Blocking the Strait of Hormuz has never been done and is unlikely to be successful for any extended period” and added, “Sea mines in the Strait of Hormuz can be cleared in several weeks.”
But ISG’s prediction is a bittersweet one – it relies on increased odds of the US falling into recession in 2024 and demand falling as economic growth crawls to a halt. While some investment banks maintain the risk of recession remains real, no one is certain which way the wind will blow.
Economists have predicted a 1.2% rise in the US economy in 2024, according to a poll conducted by Reuters – though they did not discount one or more quarters could see a slowdown or even contraction.
Analysts have also cited a boon in US oil output as one factor set to depress the price of oil. It comes after the United States boosted production in response to unexpected slashes in supply by OPEC this year.
Will the US increase oil production in 2024?
Daniel Yergin, vice chairman of S&P Global, has added his voice to those predicting a fall in oil prices in 2024. Speaking on CNBC’s Market Alert programme, he said we should expect crude prices to fall in the first half of the year. Commenting, Mr Yergin said:
‘A year ago, people thought US oil [production] wouldn’t increase very much, but it increased by one million barrels a day. The oil price reflects the fact that you have this new surge of oil coming from the United States, but Canada set a record, Brazil set a record, and all of that is weighing on the oil price.’
It comes after the US marked record oil and gas output in 2023, producing as much as 13.1 million barrels of crude and condensate daily. The production surge helped drag down oil prices from their $121 a barrel peak in June 2022 to just $71 a barrel by June 2023. The supply-side boost could be set to benefit consumers well into 2024.
However, the US Energy Information Administration (EIA), a government agency which analyses data to assist lawmakers, has predicted a rise in oil prices for the first half of 2024. They have forecast Brent crude oil to increase from December’s average of $78 per barrel to $84 per barrel in the first half of 2024 – blaming OPEC’s production cuts. However, the figure still represents a downward revision on their previous forecast, which predicted Brent crude would average $93 per barrel in 2024.
The analysis follows a November 30th deal by OPEC, which saw participant nations agree to roll over their current cuts of 1.3 million barrels per day and included additional cuts by some other members. Analysts are balancing the impact of the continued squeezing by OPEC against supply-side boosts by the US in their analysis.
What impact does OPEC have on oil price forecast?
Research group the Economist Intelligence Unit has argued OPEC’s cuts strengthen the US’s position as an energy producer, arguing that the oil-rich country’s boosted output will ‘undermine’ attempts by OPEC to inflate prices. In a December report, they said:
“Declining private investment in oil and gas exploration, in addition to a pandemic-induced slide in output, had largely lessened the US’s influence as a swing producer in the past few years. However, recent output growth and OPEC’s efforts to constrain supply have strengthened the US’s impact yet again. We now expect crude oil prices to ease slightly in 2024, reflecting higher US production and slower growth in global demand.”
The group’s analysis went on to predict US oil production would rise in 2024 to a new peak of over 19 million barrels per day before declining in 2025 based on a lull in exploration:
“We forecast that US crude production will rise by 2% in 2024 to a record 19.6m barrels/day, after having grown by an estimated 7.3% in 2023, to 19.2m b/d. This will bolster US energy exports in the coming years, supporting a narrowing of the current account deficit. However, we expect the recent decline in exploration activity to translate into slightly lower production from 2025.”
How will a fall in energy prices benefit the economy?
If oil prices do indeed fall, this could be set to spell good news for consumers. Lower fuel costs mean cheaper production in many areas, leading to cheaper goods on our shelves. It also means cheaper transport and therefore more money left in consumer’s pockets at the end of the month. In short, lower energy prices reduce the cost of carrying out commerce.
There is no ironcast consensus amongst analysts as to whether oil prices will rise or fall in 2024. The debate over whether an increase in supply by the US will offset cuts by OPEC is a contentious one, with experts falling on both sides of the divide. Those predicting falling oil prices rely on a continued surge in US oil output and a potential economic slowdown, with some experts predicting a heightened risk of a US recession in 2024. If these predictions hold and oil prices decline, consumers stand to benefit from reduced energy costs, translating into lower production expenses, cheaper goods, and increased disposable income. The interconnected nature of energy prices and commerce underscores the potential positive impact on the overall economy, offering a ray of optimism for consumers in the year ahead.
