(BFM Bourse) – Black gold prices have suffered this year, weighed down by fears about demand. The design offices see prices recovering slightly next year, while remaining at reasonable levels.
Oil has certainly disappointed in 2023. The price of a barrel of Brent is currently a little below $76, showing a drop of 12% since the start of the year, which marks a clear underperformance compared to equity markets. And to think that a year ago the research offices saw black gold returning to between 100 and 115 dollars per barrel…
Obviously, the evolution of oil has not been linear, with Brent oscillating between 70 and 95 dollars throughout 2023. But overall, black gold has not kept its promises. The fault lies with a set of factors, but the main ones remain the increases in interest rates with their repercussions on the global economy, as well as fears about the macroeconomic outlook (and therefore on demand), with the weakness of activity in China first.
“Due to worsening macroeconomic headwinds, such as rising interest rates and increasing recession risks in the United States and China, investors in the commodities sector have continued to reduce their positions in the asset class,” Bank of America noted.
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The Fed as support?
Now that interest rate hikes appear to have peaked (at least according to the market), can black gold move higher in 2024? Answer: yes, but not that much according to analysts.
In a presentation, Goldman Sachs sees Brent prices moving between $80 and $100 per barrel next year. For its part, UBS sees Brent being around $87 per barrel on average in 2024.
Bank of America for its part anticipates Brent prices at, on average, 90 dollars per barrel next year, while WTI would rise to 86 dollars per barrel.
The American bank expects oil demand to increase further next year with an increase of 1.1 million barrels per day. She considers that OPEC+, which brings together OPEC and its allies such as Russia, will continue its production reductions (even if the market emerged unconvinced from the last meeting of the cartel, hardly appreciating the fact that the reductions in production announced production are based on voluntarism) and that the United States will replenish its strategic stocks if WTI trades between 67 dollars and 72 dollars per barrel.
Among the factors that could push prices higher, the establishment cites potential key rate cuts from the American Federal Reserve, which would constitute a positive element on the demand side. However, the market currently anticipates several reductions in these rates (around 4 to 5) next year, with the first occurring in March.
These rate cuts could also weaken the dollar, and thus further support oil prices. Since the prices of black gold are denominated in dollars, a fall in the greenback would make oil less expensive and therefore more attractive to foreign investors whose reference currency is not the dollar.
The Middle East as a great unknown
Bank of America also mentions an unknown factor: geopolitics. When the conflict between Hamas and Israel flared up in early November, oil rose sharply before falling again, with the repercussions remaining limited for the moment, if not almost zero.
If the conflict remains contained, Bank of America estimates that Brent prices will remain around $90 per barrel, possibly approaching $95. “But any escalation could trigger a jump to 130 dollars per barrel,” warns the American establishment.
The World Bank had drawn up several scenarios at the end of October and the most pessimistic pushed barrel prices to nearly 160 dollars.
For its part, the ING bank judges that the oil market should record a surplus in the first part of the year before returning to a deficit in the second half of 2024.
“Given the market balance, we expect Brent to still trade in the $80s early next year. In the second half of 2024, the market will return to deficit, which suggests higher prices in the second half of 2024. half of 2024. We expect Brent to trade on average at $91 per barrel over the last six months of 2024,” the Dutch bank develops.
Ultimately, it expects Brent to average $88 per barrel in 2024 and WTI to $85 per barrel.
OPEC+ policy in question
ING warns, however, that much will depend on OPEC+ policy, at a time when the cartel is facing cracks.
“First of all, some members (Angola in particular) are not satisfied with their production quotas for 2024 and have already declared that they are not able to respect them,” notes the bank.
Above all, “OPEC+ should be more concerned that it has not been able to agree on group-wide cuts. Instead, we are seeing voluntary cuts from a handful of members. It is clear that, given the scale of the reductions already made by the group, it is becoming more and more difficult for some members to accept voluntary reductions”, explains ING.
Let us also remember that, in the long term, the elements argue for oil to rise, through the simple play of the balance between demand and supply. And particularly on the shale oil side, which still drives production and therefore supply.
“Many questions are being asked around shale gas. We have recently noted a drop in the productivity of wells and the peak of production is likely to arrive at the end of 2024. Which constitutes an important subject: the peak of shale gas production conventional oil was reached in 2008. In other words since 2008, it is shale oil which allows production to follow the growth in demand”, Benjamin Louvet, director of raw materials management at OFI Invest Asset, explained to us in September Management.
“However, according to forecasts from the International Energy Agency, demand for oil will continue to increase until 2028. The equation between demand and supply risks getting stuck. The only way to achieve a balance: that prices rise to destroy demand,” he added.
Julien Marion – ©2023 BFM Bourse