OPEC has updated its forecasts for average global oil production for 2024-2025, with demand expectations almost unchanged. We take a look at the current state of the oil market and what the future may hold for the oil price.
Table of contents:
- Increasing oil shortages on the market
- Oil stocks at lowest level since 1985!
- Largest mining output in US history
- What is the outlook for oil prices?
Increasing oil shortages on the market
Assuming OPEC maintains current production levels and production forecasts from Russia and the United States increase, a shortfall in crude is still projected to reach around 1.3 per cent of global demand in 2024. By comparison, similar levels of shortfall were seen in 2021, when crude prices increased by 49 per cent and the shortfall then reached 1.7 per cent of global demand. For 2023 as a whole, a cooling in the oil market was observed, with prices falling by 10.3 per cent and shortage levels decreasing to 0.38 per cent.
Source: Conotoxia own analysis, OPEC data
Oil stocks at lowest level since 1985!
The continuation of oil shortages in the market is forcing countries to use their oil stocks. This indicates a continuation of the trend of declining oil stocks, which are already at their lowest level since 1985 in the United States! Total stocks in the USA have decreased by a total of 5 per cent over the last 12 months.
A lack of adequate oil stocks can lead to a number of negative consequences. It could result in higher energy prices, which will directly affect the cost of living for consumers and costs for businesses. The threat to energy security is another major risk, as in the event of supply disruptions, a lack of stocks could result in fuel shortages. This, in turn, can negatively affect the economy and national security and even lead to economic recession due to increased production and transport costs. Furthermore, countries without sufficient reserves may become more dependent on imports, making them more vulnerable to price changes and export policies of other countries.
Maintaining strategic oil reserves is therefore being considered as a key element of energy policy and national security by many countries, with the aim of ensuring energy stability and independence in the face of unpredictable global market events.
Source: Conotoxia own analysis, EIA data
Largest mining output in US history
The decline in oil stocks came despite record levels of oil production. The US, which is the largest single oil producer and accounts for 20.5 per cent of global production, is currently using almost all of its production capacity. This severely limits the potential for further production increases.
Source: Conotoxia own analysis, EIA data
What is the outlook for oil prices?
According to projections made in Conotoxia's annual report for the end of 2023, it appears that the United States' ability to influence a reduction in the price of this commodity is virtually exhausted. According to the Energy Information Administration (EIA), the United States has seen historically large increases in production, utilising as much as 94 per cent of its capacity, and the lowest level of crude stocks since 1985. This - combined with growing shortages, which OPEC analysts predict at levels comparable to those of 2021, when oil prices rose 49 per cent, and expectations of economic recovery - could lead to an increase in the price of oil, even exceeding the USD 100 per barrel level.
Source: Conotoxia MT5, WTIUSD, Daily
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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