Yesterday, the International Energy Agency (IEA) released its December report.
What are the key points about the oil market outlook that can be highlighted from this report?
The IEA notes that oil market sentiment turned decidedly bearish in November and early December, as an increase in non-OPEC+ supply coincided with a slowing in global oil demand growth. The extension of OPEC+ production cuts until the first quarter of 2024 did little to support oil prices. By early December, they had fallen by about $25 per barrel from their September highs to their lowest level in six months. At the time of writing, Brent futures were trading around $74 per barrel and WTI futures around $69 per barrel.
Record supplies from the U.S., Brazil and Guyana, and a sharp increase in Iranian oil production along with weakening demand prompted some OPEC+ members to announce more extensive production cuts in the second quarter of 2024 to stave off a potential increase in inventories.
Improved drilling efficiency and well productivity in shale areas pushed the U.S. oil supply above 20 million barrels per day in September, ignoring industry warnings of an inevitable slowdown due to cost inflation and oil field maintenance capacity constraints.
As a result, the total upward revision of the U.S. supply will be about 600 thousand barrels per day. The United States is now on track to increase supply by 1.4 million barrels per day in 2023, which would be two-thirds of the non-OPEC+ expansion of 2.2 million barrels per day.
At the same time, OPEC+ is reports a decline of 400 000 barrels per day, cutting its market share to 51 % in 2023, the lowest level since the bloc was created in 2016. Significant supply cuts, largely shouldered by Saudi Arabia, have been tempered by Iranian production. Although non-OPEC+ oil supply growth will slow in 2024, the forecast gains of 1.2 million barrels per day may yet exceed the increase in global oil demand.
Evidence of a slowdown in oil demand is growing, with the rate of growth set to decline to 1.9million barrels per day from 2. 8 million barrels per day on the same period last year.
A deterioration in the macroeconomic outlook led to a downward revision of the forecast for growth in global oil consumption by almost 400 thousand barrels per day in the final three months of the year. Most of the adjustment falls on Europe, Russia and the Middle East.
As a result, global oil demand growth in 2023 was adjusted by 90 000 barrels per day from last month's report to 2.3 million barrels per day. China accounts for 78% of this year's increase. Oil consumption growth is expected to slow significantly to 1.1 million barrels per day in 2024, with demand baselines normalizing as Covid-related distortions disappear.
The continued growth in output and slowing demand will complicate efforts by key producers to protect their market share and maintain high oil prices, including Brent.
The final recommendation is to sell Brent. Take profit at the level of $65 per barrel. A stop-loss could be set at the level of $90.
This content is for informational purposes only and is not intended to be investing advice.
