In the end nothing seems to have impressed the oil market bulls as crude trading in 2023 reached its conclusion in London on Friday (December 29, 2023) with oil benchmarks down by 11% on annualized basis.
Global proxy benchmark Brent ended the European session at $76.88 per barrel down 10.6% year-till-date, while the West Texas Intermediate (WTI) was down 11.2% at $71.47 per barrel.
It appears that aggressive supply cuts from OPEC+ led by Russia and Saudi Arabia, conflict in the Middle East, attacks on shipping, geopolitical tensions and a year peppered with production outages at various points - all failed to support higher prices.
At one point in September, Brent futures did look like touching the psychological $100 per barrel mark but ultimately flattered to deceive. That's because oil is not just a story of supply as the market perma-bulls would have you believe. Demand drives the market and even there the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC) couldn't find common ground on where it would be for 2023.
Uncertain demand, lackluster prices?
OPEC offered a demand growth projection for 2023 of 2.5 million barrels per day (bpd) while the IEA estimated it to be 2.3 million bpd. The former bemoaned "overblown" negative sentiment while latter said there were solid grounds for being negative.
These included concerns over the direction of economies of China and Germany, a high interest environment and low consumer confidence in key markets. Furthermore, 2023 also saw record non-OPEC production led by the U.S.
Canada, Brazil, Norway and Guyana also notched up impressive production levels. Rising production in Iran - currently exempt from OPEC quotas - was also a factor.
Demand downsides will likely spillover into 2024. As the IEA notes: "The (market) slowdown is set to continue in 2024 as GDP growth stays below trend in major economies. Efficiency improvements and a booming electric vehicle fleet will also drag on demand."
As such it sees global demand growth for 2024 in the region of 1.1 million bpd. However, OPEC puts its projection at 2.25 million bpd. But the fact remains that both the higher as well as lower projections can currently be met by non-OPEC supply growth alone in 2024.
This supply/demand equation is unlikely to provide a price supportive environment early in 2024, and it would take a brave trader be extremely bullish for Q1 and Q2 2024. Barring any seismic economic or geopolitical developments, it does look like oil prices will be stuck in the current price range of $70 to $85 per barrel, using Brent as a benchmark for much of 2024.
"oil" - Google News
December 30, 2023 at 05:03AM
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Oil Ends 2023 Trading Down 11% And Lacking Very Many Upsides For 2024 - Forbes
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