Crude catches breath after a slump: A peek into 2024 supply, prices and wildcards

This post delves into the intricate dance of the crude oil market, exploring the recent dip, potential 2024 developments.

U.S. oil markets took a breather in the week ending December 8, 2023, with refinery activity moderating, inventories drawing down, and prices facing downward pressure. Compared to the robust run of the previous week, several key metrics signalled a shift in pace.

Refineries Dial Back: After a week of increased processing, refineries dialled back their pace, averaging 16.1 million barrels per day, a dip of 104 thousand barrels per day from the previous week. Capacity utilization also softened, settling at 90.2%, down from 90.5%.

Inventory Adjustments: Crude oil inventories, excluding those in the Strategic Petroleum Reserve, shed 4.3 million barrels, bringing the total to 440.8 million barrels. This level remains slightly below the five-year average for this time of year. Similarly, gasoline inventories, after a brief uptick, shed 0.4 million barrels, placing them slightly under the five-year average. However, distillate fuel inventories bucked the trend, adding 1.5 million barrels and widening the gap with the five-year average.

Price Pressures: While crude prices have rebounded slightly since their December 13th lows, the West Texas Intermediate (WTI) benchmark remains down 6.26% since December 1st, 2023, extending the previous week’s decline. Similarly, gasoline and heating oil prices at the New York Harbor spot market, the key trading hub, declined, although gasoline prices still remained marginally above year-ago levels.

Consumption Signals Mixed: While gasoline product supplied over the past four weeks edged up compared to the same period last year, distillate fuel product supplied dipped slightly. This suggests a slower pace of industrial and commercial activity compared to the festive season in gasoline.

Comparison with Previous Week: Compared to the dynamic changes of the previous week, this week’s oil market data presented a more subdued picture. Lower refinery activity, inventory adjustments, and softer price movements suggest a period of consolidation after a brief flurry. With several economic indicators pointing towards potential headwinds, it remains to be seen whether this moderation will persist or pave the way for further adjustments in the weeks ahead.

Supply Landscape: Looking ahead to 2024, the supply picture appears complex. OPEC+, the influential oil cartel, has pledged to maintain production cuts throughout the first quarter, potentially creating a temporary supply deficit. However, non-OPEC producers, led by Brazil, Guyana, and the United States, are expected to ramp up output, injecting an estimated 1.2-1.9 million barrels per day (bpd) into the market. This surge could tip the scales towards oversupply later in the year.

Price Predictions: Forecasting oil prices for next year is akin to navigating a tightrope. The International Energy Agency (IEA) predicts a relatively stable average of $84.43 per barrel, while OPEC remains optimistic, anticipating a higher $89 per barrel average. However, a confluence of factors could throw these forecasts off-kilter. A potential recession, the escalating Ukraine war, and the ever-present threat of Middle East disruptions could send prices spiralling upwards. On the other hand, successful advancements in renewable energy or a swift global economic recovery could dampen demand and exert downward pressure.

Wildcards in the Deck: Beyond the core supply-demand dynamics, several wildcards could shuffle the deck in 2024. The first is the fate of Iran and Venezuela, both OPEC members currently under sanctions. If restrictions are lifted, their combined output could rise by over 1 million bpd, significantly impacting the market. The second wildcard is the ongoing climate crisis. The recent COP28 agreement, while historic, offers scant details on actual fossil fuel reduction timelines. Nonetheless, increasing pressure for green energy could eventually disrupt traditional oil demand patterns.

Navigating the 2024 Oil Maze: In conclusion, the 2024 oil market promises to be a rollercoaster ride, with supply, prices, and geopolitical factors playing a continuous tug-of-war. For investors, traders, and anyone with a stake in the black gold game, keeping a close eye on these dynamics and adapting to the unexpected will be key to navigating the maze and emerging victorious.

Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

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