Oil Prices: No Sustainable Path Higher, Analyst Warns
Wednesday, Nov 13, 2024 5:35 pm ET
4min read 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.
Word count: 598
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.
Word count: 598
Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.