An impending recession, a deepening slowdown in the major economies of the world, less than expected crude demand from China, and less production will be defining features for oil markets in 2024.

Firstly, let’s recap the performance of crude oil in 2023.

Oil markets in 2023 – a recap

The oil markets in 2023 can be defined by certain characteristics. The most important of all was the prolonged production cuts by OPEC+ (the Organisation of the Petroleum Exporting Countries and its allies). Together they pump 40% of global oil supply.

In April 2023, the group announced additional cuts of 1.65 million barrels per day (mbpd), building on their previously agreed cuts of 2 mbpd from October 2022. This would correspond to about 3.66 mbpd of cuts equal to about 3% of global oil demand. Markets reacted positively to this development and oil prices rallied.

The trend gained more momentum when in June 2023 Saudi Arabia, the de-facto leader of OPEC and one of the top 3 largest oil producers in the world, decided to volunteer for additional cuts of 1 mbpd “with the aim of supporting the stability and balance of oil markets”. Oil prices peaked at $97, an increase of 25% since June 2023. Recently in November, OPEC+ also agreed to extend the cuts into the first quarter of 2024.

Apart from that, China’s economic recovery continued to thwart any sustainable and substantial oil price rally. European countries also registered an economic slowdown with oil demand in Germany falling by 90,000 bpd in 2023, according to the International Energy Agency (IEA) expectations. Furthermore, US manufacturing activity declined for 13 consecutive months.

The war in the Middle-East, meanwhile, had a muted effect on oil prices.

Oil price outlook for 2024

It is expected that we will see ample supply next year due to a slowdown in economic activity combined with rising production from the US – that recently touched its highest at 13.24 mbpd. Moreover, Brazil, Guyana, Norway and Canada will keep the markets flush with enough oil. This also answers the question of whether oil prices will touch $100 in 2024. Without a geopolitical flashpoint, the chances of that happening are almost zero.

The IEA sees global oil demand rising next year as it highlighted in its recent report. It said that the world’s oil consumption will increase by 1.1 mbpd in 2024 – and noted production from non-OPEC producers will also contribute 1.2 mbpd to global supply. OPEC’s 2024 outlook is slightly different from that of the IEA as it sees an uptick of 2.25 mbpd.

In terms of price, technical analysis shows there seems to be considerable support at $65 (for WTI) and in the mid $60 range for Brent crude, if the global recession hits. Realising the slowdown in the global economy, Goldman Sachs has reduced its forecast as it sees Brent averaging $80/$81. This forecast converges with that of IEA, which sees Brent at $82.57 per barrel in 2024. Barclays is still on the higher side and sees oil averaging $93 in 2024, while S&P Global thinks $85 is more appropriate.

The most important trend to follow in order to get a better understanding on the outlook for oil prices for 2024 is the state of the global economy as oil demand is synonymous with economic activity.

When OPEC+ reduced its output (as earlier noted) it was not because there was more oil in the markets, it was because the group was wise enough to foresee the impending slowdown in the global economy.

As we enter 2024, the global economic indicators do not look very strong and the probability of a recession, despite suggestions of a soft landing, is still high. As a result, oil prices in 2024 will have more downside potential than upside.

How market oil prices impact consumers

Crude oil is the most strategically important commodity in the world. There are 4000+ by-products of oil and its price impacts almost all the sectors of the economy and every sphere of our lives.

Rising oil prices contribute to higher transportation costs that can result in the increased prices of goods. Furthermore, by driving up energy prices in general, rising oil prices contribute to higher inflation levels that eat away at consumers’ purchasing power.

According to Eurosystem staff projections “an increase of 1% in oil prices would imply a decline in the level of euro area potential output of around -0.02% in the medium term”.

Despite the headwinds in 2024, consumers might be able to breathe a sigh of relief as oil prices are expected to remain range-bound or trend downwards as compared to 2023, as earlier noted, with the global economy expected to remain sluggish.