Demand is main uncertainty but probably not enough to break OPEC+ strategy in 2024

Good recovery last week. Mostly sideways this morning. Brent crude gained 2.4% last week with a close of USD 83.55/b with most of this gain being a recovery of the 2.5% decline on Friday 23 Feb. This morning Brent is inching up 0.2% to USD 83.7/b with support from news that OPEC+ will keep production curbs in place to end of June this year.

Bjarne Schieldrop, Chief analyst commodities, SEB

Two sell-offs so far this year but inching higher cent by cent since mid-Feb. Brent crude sold off to USD 74.79/b in early January and then another sell-off in early February to USD 76.62/b (both intraday lows). Since mid-February however Brent crude has moved gradually higher, inch by inch or cent, by cent more correctly.

A range of factors has supported Brent crude’s gradual move higher. This gradual move higher has been underpinned by residing fear for a US hard landing (and a global recession), a steady course by OPEC+ sticking to ”price over volume” strategy, stronger confidence that US shale oil production will go sideways most of the year with a US total hydrocarbon liquids growth from Q4-23 to Q4-24 of only 0.1 m b/d YoY and not the least total US crude and products inventories incl. SPR ticking lower rather than higher. The latter element here indicates a total, global supply/demand balance in slight deficit which again reflects that cuts by OPEC+ have been sufficient so far.

Three main elements of uncertainties for 2024 are:

1) US shale oil growing more or less than current sideways expectations
2) Global oil demand growing more or less than current expectations
3) Tighter or looser enforcement of US sanctions towards Russia. But Biden won’t enforce the oil price into a spike ahead of the election though. 

1) Is both a bull and a bear risk. It could go both ways. There is also a risk that US shale oil declines in 2024
2) Could also go both ways, though we tilt to the bear risk side on this  as politics around the world increasingly is protectionist and thus growth-negative 
3) This point goes hand in hand with 1). If US shale oil supply grows more than expected then US administration will likely enforce sanctions towards Russia harder. But also the other way around if US shale oil production disappoint and declines. So 1) and 3) should partially be balancing forces rather than risk of double up in either direction

That leaves us with main risk in 2024 being 2), demand. But to really sink the oil price to a crash the demand weakness must be so bad that OPEC+ actually switches strategy to ”volume over price” and allows the oil price to crash. This seems unlikely unless we get a sharp, global economic slowdown/recession.

So back to the boring market outlook: Sideways at USD 85/b for 2024. But markets are normally never boring for very long. So some surprises will come along the way for sure anyhow.

Brent crude 1mth contract inching higher cent by cent since mid-Feb

Source: Blbrg graph

Total US crude and products incl. SPR declining reflecting a global supply/demand balance in slight deficit.

Source: SEB calculations and graph, Blbrg data, EIA data

US commercial crude and product stocks below normal and below last year

Source:  SEB calculations and graph, Blbrg data, EIA data

US commercial crude and product stocks vs. the 2015-19 average. Still very low mid-dist stocks

Source:  SEB calculations and graph, Blbrg data, EIA data

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