Crude oil prices seesaw on geopolitics and ebbing demand

Oil prices across the globe have been seeing choppy trading since 2024 kicked off given a slew of factors including the ongoing attacks in the Red Sea and the war in Middle East on one hand, higher non-OPEC production and flagging global demand on the other. Yet, oil prices have trended notably higher from the lows of $70-75/bbl seen back in December as WTI neared $80/bbl and Brent tested $83/bbl earlier this week before easing back down by Wednesday.

According to ChemOrbis Price Wizard, the monthly average of oil prices has posted a cumulative increase of $5/bbl since benchmarks hit their lowest seen since 2020 in December. The recent weekly averages also suggest that prices hit the highest levels since October 2023, when the Middle East war first broke out, trading in a $10 range.

Geopolitics rattles global markets, driving price hikes

The war between Israel and Hamas which dates back to October last year has not shown any signs of easing so far and continued to pave way for oil hikes. Indeed, any progress towards a ceasefire in the Middle East fell short of expectations with Israel rejecting ceasefire offers, adding fuel to the geopolitical tensions.

The war was not the only factor creating jitters in the region, while the attacks in the Red Sea also remained intact, hindering shipments and adding to the supply disruptions. The recent crisis in the Red Sea is likely to continue in the second half of 2024. Yet, the overall impact of new and longer transits will be relatively limited compared to the previous months as carriers have started to adapt to new routes and optimize their shipments.

Faltering global demand and healthily growing non-OPEC production cap bullish factors

Moving towards mid-February, US crude stocks surged on the week. This combined with slower oil demand projections for 2024 counterbalanced the bullish factors, resulting in some downward correction in crude oil prices.

International Energy Agency (IEA) has lowered its global oil demand forecast by 20,000 barrels from previous month’s estimate to around 1.2 million barrels/day for 2024 owing in part to a sharp slowdown in Chinese consumption. Major economies also continue to grapple with high interest rates aimed at curbing sticky inflation. Rate cut hopes from the Fed have also faded recently, weighing further down on oil demand prospect.

As for supply, even though OPEC+ decided to extend production cuts into Q1, the IEA raised its projection for 2024 by 200,000 barrels per day, estimating supply will grow by 1.7 million bpd to a record high of about 103.8 million. This growth will be entirely driven by producers outside OPEC+, including the United States, Brazil, Canada and Guyana.

Oil price forecasts: Brent to stay above $80

The aforementioned factors are expected to keep global oil markets on a highly volatile tone for the upcoming term. Between the bulls and bears, several banks and market analysts announced their crude oil price forecasts.

US Energy Information Administration’s (EIA) revealed its price projections for Brent to $82.42/bbl in 2024 while WTI is set to average around $77.68/bbl. EIA suggests that slower demand concerns will continue to keep the market under check despite the ongoing war and logistics turmoil.

Moreover, Morgan Stanley expects Brent oil to average $82.50/bbl while Goldman Sachs foresees Brent to hover in a range between $70/bbl and $80/bbl in 2024.

“We expect Brent to trade around the current level in the coming weeks,” Arne Lohmann Rasmussen, head of research at A/S Global Risk Management said.