Oil Price Forecast For 2024 – Oil Will Test The $90 Level

Key Insights

• Oil markets moved lower at the end of the year as traders remained focused on the short-term weakness of demand. 
• Oil demand is expected to increase in 2024 while OPEC+ continues to provide support to oil markets via production cuts. 
• From the technical point of view, oil markets stay range-bound, and oil will likely get back to the high end of the range as demand grows in 2024.

2023 in Review

As usual, oil markets were volatile in 2023. Oil prices were driven by recession fears and OPEC+ production cuts. As a result, the price of WTI oil fluctuated between $63.61 and $94.99, while the price of Brent oil was in the $70.17 – $95.91 range.

At this point, it is obvious that OPEC+ production cuts have managed to put a floor under oil prices but failed to establish a new upside trend. The sluggish demand for energy in Europe and the problems of China’s economy did not allow oil prices to test the psychologically important $100 level.

The price cap on Russian oil, which was set at $60 by the Western countries, did not have a significant impact on oil market dynamics. Russia sold oil at a discount to China and India, but the size of this discount did not depend on the price cap. Thus, the price cap did not serve as a bearish catalyst for oil markets (Russia did not observe the cap) and also failed to provide any additional support (Russia’s exports were cut as a result of a deal with OPEC+).

Global Economic Forecast for 2024

IMF expects that the world economy would grow by 2.9% in 2024. India and China are projected to be the key drivers for this growth as both economies continue to expand at a decent pace. Both countries are buying Russian oil at a discount to global benchmarks, which may allow them to purchase more oil than analysts expect.

The performance of China’s economy remains the key catalyst for oil markets. The Chinese government has introduced various measures to provide support to the economy, but the recent data indicates that China’s economy is not able to show strong growth. Stimulus measures take time to be fully implemented, so we may see positive results in 2024, which will be bullish for oil markets.

The current market consensus implies that Fed will manage to orchestrate a soft landing and U.S. will avoid a recession, which is also bullish for oil prices. Together with China’s recovery, the solid performance of the U.S. economy should provide sufficient support to oil demand and offset the potential weakness of demand in Europe.

Geopolitical Uncertainties

Geopolitical factors have traditionally played a key role for oil markets. In 2024, oil traders will stay focused on Russia – Ukraine and Israel – Hamas conflicts.

At this point, the Israel – Hamas conflict had minimal impact on oil prices. Rising tensions in the Middle East are often viewed as a bullish catalyst for oil markets. This year, they have led to temporary spikes that did not fuel a long-term bullish trend in the oil markets.

Talking about Russia, Western countries have announced additional measures to make the price cap more effective, but it remains to be seen whether they will have any impact on Russian oil exports.

Any scenario implying an escalation of tensions in current conflicts may be bullish for oil, but it should be noted that such scenarios have not realized in 2023. In my opinion, a rally fueled by geopolitical developments is not the base case scenariio for oil markets in 2024.

Supply, Demand, and Price Dynamics

OPEC expects that 2024 oil demand would grow by 2.2 million bpd for an average of 104.4 million bpd. IEA expects that global oil demand would grow by 1.1 million bpd.

The big difference between forecasts is not surprising as OPEC represents producers while IEA is more focused on oil consumers. It should be noted that both organizations expect healthy demand growth for the next year.

Talking about supply, the key uncertainty is the OPEC+ policy in 2024. At this point, both Saudi Arabia and Russia have shown their desire to cut production to provide support to oil prices. In case OPEC+ policy remains intact, oil prices would not be able to gain strong downside momentum unless developed economies fall into a recession.

Market Risks and Volatility

Traders should expect that oil markets will remain sensitive to geopolitical news and OPEC+ production decisions. The year 2023 has shown that prices react quickly to any developments.

However, oil markets need something bigger than news for a sustainable trend. In this light, traders focused on longer-term timeframes should concentrate on developments that may have a significant impact on the supply/demand balance.

I’d note that traders should also monitor potential weather-related risks in 2024. Extreme weather is more common nowadays, and such weather could bring disruption to both supply and demand. Unfortunately, extreme weather is unpredictable in the long term, so traders will have to check weather forecasts to find developments that could have an impact on the oil markets.

TA Forecast for 2024

Taking a look at the weekly chart, we can see that WTI oil has been mostly range-bound in recent years, with the exception of the rally in early 2022. At that time, traders reacted to the beginning of the conflict between Russia and Ukraine.

This conflict drags on but oil prices have returned into their trading range as there were no supply disruptions. The weakness of demand in Europe and China is currently offset by OPEC+ production cuts.

In my opinion, OPEC+ policy will prevent oil prices from moving below the low end of the current range. Most likely, any dips below $65.00 will be quickly bought by traders.

At the same time, WTI oil has a decent chance to get back to the high end of the range as China recovers and U.S. avoids a recession. I’d note that WTI oil will need extremely strong catalysts to settle above $90 and get to the test of the $100 level. Such catalysts would have to come from the realm of geopolitics. However, given the market reaction to the almost two years of Russia-Ukraine conflict, oil prices will need something new for sustainable upside above the $100 level.

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