Oil Prices: No Sustainable Path Higher, Analyst Warns

Oil prices have been volatile in recent months, with analysts predicting a mixed outlook for the coming years. While some experts foresee a steady increase in oil prices, others, like Neil Beveridge from Bernstein, caution that there is no 'sustainable path' higher for oil prices in the long term. This article explores the factors influencing oil price sustainability and the analyst's perspective on the future of oil prices.

Geopolitical tensions and supply chain disruptions significantly impact oil price sustainability. The Middle East, in particular, remains a hotspot for geopolitical risks, with escalating tensions between Israel and Iran potentially disrupting oil supply and driving prices up. However, Beveridge argues that these factors alone do not dictate a sustainable path higher for oil prices. The International Energy Agency's (IEA) Oil Market Report (Number: 2) shows that global oil demand growth is slowing, with China accounting for less than 20% of gains in 2024 and 2025, compared to almost 70% in 2023. Additionally, non-OPEC+ supply growth is robust, led by the Americas, accounting for 80% of gains. Therefore, while short-term disruptions can affect prices, the long-term sustainability of oil prices depends more on demand growth and supply dynamics.



Beveridge expects oil prices to stabilize around $50-$60 per barrel by the end of 2024, assuming no second wave of COVID-19 or major supply disruptions. His view is supported by the IEA's Oil Market Report (October 2024), which shows a sharp slowdown in global oil demand growth. The Energy Information Administration's (EIA) Short-Term Energy Outlook (August 2024) also forecasts global oil consumption to increase by 1.1 million barrels per day (b/d) in 2024 and 1.6 million b/d in 2025, down from a previous forecast of 1.8 million b/d, mainly due to reduced oil consumption in China.

OPEC+ production cuts, as seen in the IEA's October 2024 report, have significantly impacted oil prices. The group's decision to maintain record cuts through July has bolstered the market's sustainability. However, the market remains a "sick patient," with a substantial inventory overhang and high uncertainty in supply and demand outlooks. Goldman Sachs predicts a pullback in WTI and Brent prices in the coming weeks due to expected volatility normalization. Beveridge, however, expects oil prices to top $50/bbl and approach $60/bbl by year-end, assuming inventories fall, demand continues to grow, and countries comply with OPEC+ cuts.

In conclusion, while geopolitical tensions and supply chain disruptions can impact oil price sustainability in the short term, the long-term outlook depends more on demand growth and supply dynamics. Analysts like Beveridge caution that there is no 'sustainable path' higher for oil prices, with global oil demand growth slowing and non-OPEC+ supply growth remaining robust. Investors should consider these factors when making investment decisions in the oil and gas sector.

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