Will oil prices hit $100 a barrel in 2024?
Against many of the bets of the market, oil prices have risen sharply throughout the first quarter of 2024.
Benchmark Brent crude is up 18 per cent since January 1st to $90.14 (£71) as of Monday morning and West Texas Intermediate has risen more than 20 per cent to just over $85.
The conflicts in the Middle East and Eastern Europe continue to rage on and major economic policy decisions in the West, combined with action from controlling oil groups, have supported the price growth to date.
But what are the chances we see a $100 barrel soon and what could take it there?
Within reach?
First and foremost, the price of oil crossing this threshold is more than possible.
It’s an outcome far removed from where much of the market stood on the topic when 2023 drew to a close.
Brent Crude languished at $82 (£65) per barrel, the world’s largest oil company Saudi Aramco shelved a planned 1m barrels per day expansion in oil production to 13m barrels per day (b/d) and China’s lagging industrial machine was using less oil than before.
Attacks on shipping in the Red Sea had just begun, launched by Houthi rebels off the coast of Yemen in what they described as a “campaign of solidarity” with Palestinians and against Israel’s continuing war on Gaza, that was, in January, entering its fourth month.
Russia’s war in Ukraine meanwhile entered its third calendar year.
The energy markets were rocked when the invasion first occurred in February of 2022, and oil prices jumped above $100 a barrel and increased to $127 (£100) per barrel on 8 March, before falling back to below $100 in June of that year, where they have remained since.
The two conflicts remain at the centre of the conversation around oil prices.
Russia continues to ramp up its war efforts against Ukraine, while the Palestinian death toll has risen above 30,000.
Israel looks to be exploring the option of a ceasefire after coming under heavy political pressure from the United Nations and the US, but nothing has been decided yet.
Kpler’s lead crude analyst, Viktor Katona, told City A.M that the situation remains poised on a knife edge, one that is likely to support further oil prices rises.
“One seemingly innocuous spark or a sudden supply disruption somewhere and we would see prices climbing higher to $100 per barrel,” he said.
“All this geopolitical risk is getting priced into oil prices just as we’re moving into the summer months, the tightest period of the year when everyone consumes as much as possible.”
Panmure Gordon analysts note, meanwhile, that while the impact on oil prices remains, it has diluted somewhat, as the likelihood of battle spreading to other nations has fallen.
Power in the Middle East
Other Middle Eastern nations are taking more direct action to influence oil prices.
The Organisation of Petroleum Exporting Countries (OPEC+), led by Saudi Arabia, Russia and the United Arab Emirate, is maintaining a programme of cutting 2.2m barrels a day in an effort to drive oil price upwards.
When first announced at the end of last year, Panmure Gordon analysts said that the cuts had little impact on the market as the onus was shifted by Saudi Arabia and Russia onto smaller producing nations within the group.
Given the cuts were ‘voluntary’, the analysts noted, it was deemed “improbable” that major players like Saudi Arabia would adhere to them for the long term.
However, the group’s meeting last Wednesday confirmed production cuts would stay in place until at least the end of June.
This sustained strategy means there is a “strong likelihood” oil will tip over the $100 per barrel mark, Onyx Capital Group chief executive Greg Newman told City A.M.
“We look to be in a very similar situation to 2022 from an OPEC supply point of view, made materially worse because this time round Russian oil sanctions are genuinely biting, whereas in 2022 trade flows were simply rerouted,” he said.
“This means there is potentially even more supply offline than the peak of 2022 which the market is only just starting to wake up and realise and the indicators in the physical market are very strong and will likely get stronger.”
He added: “The sentiment has shifted markedly from a slightly bearish attitude when people were afraid to invest for fear of too many unknowns to right now when it’s a much more conducive and bullish environment.”
The US and China
Other international developments are driving the likelihood of a $100 per barrel.
Despite an extended run of tepid activity, China has announced more stimulus measures to try and lift its sluggish economy. Though similar previous measures have proved underwhelming and somewhat ineffective to date, the prospect of a return to growth in China would almost certainly cause prices to rise.
China remains the strongest supporter for oil demand growth, as Panmure Gordon points out that OECD demand remains below pre-pandemic levels.
The US, too, is continuing to play its part.
Coming off a record drilling year that saw strong returns off a weak base price for US majors Chevron and Exxon, the US Strategic Reserve are moving to refill supplies.
In March, the body said it would replenish its stores to the point where levels will either reach or exceed the level prior to the massive 180 million barrels per day in 2022, setting a solid floor for WTI in the process.
Expectations of interest rate reductions continue to be discussed, despite noises from the US Central Bank indicating that these will not be before June this year.
Despite these factors, some analysts are holding firm on a price fall as the year progresses.
A note last week from J.P Morgan said it is maintaining its prediction of a $90 per barrel threshold in May, falling to $85/bbl in the second half of the year.
Analysts from the firm added, however, that the global oil price could hit $100 per barrel on the way to that point.