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Is Brent oil really poised for $90/bbl threshold?

by Esra Ersöz - eersoz@chemorbis.com
  • 25/03/2024 (13:03)
Brent oil hit $87/bbl last week, before the latter part of the week saw prices corrected down. Although oil prices have been highly volatile for the past couple of months, the monthly averages suggest an upward trend for three months in a row. Besides, estimations largely call for further increases for the remainder of 2024 under the shadow of slower demand growth outlook.

There has been a constant tug of war in oil markets, resulting in choppy trading sessions daily.

The bulls are basically:
  • Red Sea disruptions causing more bunker fuel demand

  • Geopolitical tensions including the ongoing war in Middle East and the recent attacks on Russian refineries

  • The extension of OPEC’s voluntary cuts to Q2 and the high probability of further extension to the year-end

Meanwhile, bears are:
  • Higher non-OPEC output driven by the record production in the US, partly offsetting the ongoing output cuts from OPEC+

  • Flagging demand in the midst of Fed’s determination to keep interest rates steady in H1, despite some sporadic signals of economic recovery from the US and China

Apparently, bulls have outweighed bears in oil prices as average prices have trended higher with last week’s rally pushing prices to their highest level since mid-to-late October. March is also the third consecutive month of an uptrend in monthly averages with a cumulative gain of $7/bbl. Plunging crude stocks in the US and IEA’s expectation of a supply deficit in 2024 were mainly blamed for the recent rally.

Supply forecasts see an unexpected change

In a surprising move, the International Energy Agency (IEA) changed its supply forecast to deficit from surplus in its March report based on the projection that OPEC’s voluntary production cuts will remain in effect throughout 2024. The agency also raised its demand forecast for 2024 by 100,000 bdp from the previous month to 1.3 million barrels/day for 2024, although this growth still suggests a decline from the previous year’s 2.3 million growth.

Likewise, the US Energy Information Administration (EIA) lowered its forecast for global oil production growth and raised its demand growth forecast albeit slightly in its March report.

Not to mention, OPEC remains the most bullish among others to keep its growth forecast visibly higher.

Is $90/bbl a matter of time or is it just flirting with it?

This is what some estimates call for, whilst others remain more cautious in their forecast. Even though demand growth is projected to slow down in 2024 from the previous year, many institutions and agencies have recently turned bullish in their estimations.

EIA sharply raised its price estimates for 2024 and 2025 by around $5/bbl from February, when a downward revision was made. For 2024, Brent is expected to average $87/bbl in 2024 while the agency does not think the $90/bbl level will be sustained for now.

J.P. Morgan expects Brent crude oil to average $83/bbl in 2024, largely unchanged from its previous estimate, while Citi Group lifted its Q2 2024 forecast for Brent to $78/bbl from its previous estimation of $72/bbl.

Goldman Sachs expects Brent oil prices to hover in a range between $70/bbl and $90/bbl in 2024, $10/bbl higher from its previous estimates due to the voluntary output cuts from OPEC+. The bank stated that Brent may reach $90/bbl in Q4 if OPEC+ decides to extend output cuts by 6 more months.

Morgan Stanley also raised its Brent oil price forecasts by $10 per barrel to $90 for Q3 2024.
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