Expert View | Oil market oversupplied with high US output, Brent seen at $87-$92 for 2024: ShareKhan’s Mohammed Imran
- Research analyst Imran from ShareKhan experts Brent crude to average between $87-$92 per barrel for 2024. Oil prices are weaker due to an oversupply in markets as US output is more than any other nation, said Imran.
International crude oil prices have largely softened since the Israel-Hamas price shock phased off in late 2023 and the volatility in market continues till now (March'24), despite the Organisation of Petroleum Exporting Countries (OPEC) extending supply cut of 2.2 million barrels per day (bpd) till mid-2024. Saudi Arabia will extend its voluntary cut of one million bpd in June, leaving its output at around nine million bpd, much below its capacity of 12 million bpd.
Russia, which leads OPEC allies collectively known as OPEC+, had also said that it will reduce exports and output by an extra 471,000 bpd in the second quarter. However, analysts are not particularly bullish on the crude oil prices this year as many believe markets to be oversupplied with OPEC decisions hardly making a difference towards ‘price stability’.
Moreover, OPEC and Paris-based energy watchdog International Energy Agency (IEA) have emerged divided in their respective oil demand projections for 2024. The IEA raised its demand forecast for the fourth time since November 2023 predicting a tighter market, whereas OPEC has retained its view in its February report.
This week however, oil prices have been on an uptrend and hit a five-month high-mark, the highest level since November 2023, after Ukraine attack on Russian refinery posed supply disruptions. So far in 2024, oil has found support from the ongoing geopolitical tensions and the Houthi attacks on Red Sea.
Several brokerages are predicting that crude oil is likely to remain in the range of $79-$85 till the second quarter of 2024, with JPMorgan forecasting an average of $83 per barrel this year. Mohammed Imran, Research Analyst at leading domestic brokerage ShareKhan by BNP Paribas in an interview to Mint's Nikita Prasad, said that crude oil prices are weaker because of the current oil market condition. Imran added that OPEC is 'artificially' curtailing oil production and losing its market share to maintain Brent above $80 per barrel.
Edited excerpts from the interview:
1.OPEC cartel, led by Saudi Arabia, recently extended the voluntary oil output cuts of 2.2 million bpd into the second quarter or mid-2024 to support 'market stability'. However, prices have since remained volatile and prone to Middle East geopolitical events. Do you see crude oil prices on an up move in the next 2 months?
We expect prices to move higher from here as the latest extensions of voluntary cuts would keep the global crude oil market balance in deficit of around 0.5-0.7 mbpd by the end of June quarter, while slight uptick in Asian demand led by China could see WTI prices sailing above $80-$82 range.
OPEC has already raised its March OSP (official selling price) for its crude for Asian buyers as it remains optimistic about incremental demand for 2024. OPEC in its latest monthly report mentioned that global demand would rise by 2.2 million bpd in 2024 and a further 1.8 million in 2025.
2.The next OPEC and non-OPEC ministerial meeting will be held in the first week of April. According to you, what will OPEC+ decide in terms of global oil output and how will global markets react to those measures?
We think OPEC+ will maintain the status quo as they have extended voluntary cuts till June 2024, and Brent prices have since then stabilised above $80, which has given a cushion for OPEC+ kingpin Saudi and Russia to keep the policy unchanged.
While OPEC+ cuts would be offset by the rising production from non-OPEC nations (US, Brazil, Guyana, Angola), it would somehow keep the market stable. The expected June rate cuts from US Fed will boost the growth sentiments, hence, we expect Brent prices to average between $87-$92 for 2024.
3.What is the situation in non-OPEC nations? How well are they competing with the traditional OPEC leaders and Middle East suppliers?
US is producing more crude oil than any nation at any time for the past six years in a row, according to EIA. US output was 13.1 mbpd in 2023, which is expected to further jump to 13.19 mbpd in 2024 and 13.65 mbpd by 2025 and this record is unlikely to be broken by any nation in the near term.
US, Brazil, Guyana, and Canada together, are projected to add 1.4 million b/d of new oil production. Non-OPEC+ producers together are set to add 1.6 million b/d, and all this new oil is finding ready markets which used to traditionally rely on Middle Eastern suppliers, leading to what we see an oversupply in the market, resulting in price weakness.
4. Coming to policy changes, high interest rates by central banks have typically supported oil demand. However, the recent US inflation data of February has diminished hopes of a June rate cut by the US Federal Reserve. With OPEC's ongoing output cuts, do you think the global supply will be able to quench the thirst in oil markets, if global demand shoots up in late-2024?
OPEC+ production cuts are no longer a concern for crude importers in the Far East as refiners across South Korea, Japan, Taiwan, Thailand, Vietnam are not facing any major issues securing their staple Middle Eastern sour crude. South Korea, the top Asian buyer of US crude, picked up 14.21 million barrels, as per the Korea National Oil Corp.
Taiwan's US crude imports rose 27.9 per cent on the year to 252,113 b/d in January, while Japan almost doubled its US crude intake to 130,578 b/d in the same month from 71,142 b/d a year earlier as per their government data.
And we have seen from the latest OPEC monthly report that the oil cartel remains optimistic about crude oil demand. Any sign of improvement in global expansion would see OPEC+ abandoning its additional voluntarily cuts to meet the global demand and pick up the lost market share.
Also Read: From high inflation to import bill - the domino effect of rising crude oil prices on Indian economy
5. Finally, what is your 2024 outlook for oil prices and when do you see Brent touching $100 per barrel? What key advice do you have for investors this year who are betting on MCX crude futures or those trading in Indian commodity markets?
Unless we see escalation of middle eastern war turning into a full blown-up war involving major producers in the region, we are unlikely to see Brent touching $100 mark. This, despite an increasing global demand in second half as OPEC+ is artificially curtailing production and losing market share in order to maintain Brent above $80.
So, we expect Saudi Arabia led OPEC+ to change its policy stance once demand is in place. Brent crude could average $90-$92 for 2024 and MCX prices could test the resistance of ₹7200/b by end of 2024.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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