What Themes Will Dominate Global Oil Market in 2024?

The major themes that will drive the global oil market in 2024 will coalesce around the ability of oil producers to find a sustainable balance between energy supply and demand.

That’s what Art Hogan, Chief Market Strategist at B. Riley Wealth, told Rigzone when asked what themes will dominate the global oil market this year.

“OPEC+ has done an effective job in 2023 of coordinating lower output levels, in an environment of decelerating demand,” Hogan said.

“Additionally, Brazil looks set to join the alliance in January 2024 which should increase the cartel’s influence,” he added.

“At the same time, Saudi Arabia has been getting significant push back on further production cuts from some members like Angola, and the prospect of additional reductions can generate reluctance and pushback,” he continued.

The biggest change in the overall supply picture is the record U.S. production that will likely continue to grow will into 2024, Hogan told Rigzone, adding that the biggest change on the demand side has been “the tepid economic growth in China”.

“We suspect that the Chinese will be able to stimulate growth by the second half of 2024, helping to offset the current oversupplied global energy market,” Hogan said.

The Chief Market Strategists also noted that, “while we have already witnessed geopolitical events in several regions that could either reduce energy supply or raise the risks of supply disruptions, that has not yet come to fruition”.

“It may become an issue in 2024 if the Israel - Palestine conflict become less contained to the region,” he added.

Hogan told Rigzone that B. Riley Wealth sees “the dynamic supply/demand coming into better balance in the back half of the year”.

One of Rigzone’s regular market watchers told Rigzone, on the condition of anonymity, that the themes of geopolitics and energy security will “remain at the top of the energy clipboard for 2024 given dual wars in Ukraine and the Middle East, as well as other flashpoints”.

“There are also many important elections taking place around the world. All of these macro factors will keep the pressure on energy as a key economic and political theme,” the market watcher added.

This market watcher also noted that the energy transition will continue to unfold “with some project genres gathering more momentum than others due to financial and infrastructure constraints”.

“Without any major change in infrastructure and permitting in the U.S., renewable energy will face many of the same challenges faced by traditional energy,” the watcher added.

“Carbon Capture and Storage is a technology that could see continued momentum while investment in others such as offshore wind becomes much more selective,” the watcher continued.

The market watcher also told Rigzone that U.S. oil, natural gas, and NGL exports will continue at a strong pace “due to demand and energy security factors including the goal of the EU to replace Russian energy by 2027”.

“Maritime constraints in key passages such as the Panama Canal and the Suez Canal will continue to play a large role in trade vectors,” the market watcher said.

“These limitations could have ramifications for longer trade to Asia from the U.S. and from the Middle East/Africa to the EU. Currency issues will remain an issue for Russian crude exports in addition to the tightening of sanctions,” the watcher added.

The market watcher also noted that consolidation will continue in the upstream, midstream, and downstream energy space.

“It is more challenging to grow businesses organically and acquisitions (using stock) remain a most attractive pathway to building scale and increasing competitive advantage,” the watcher said.

Finally, the market watcher told Rigzone that the election in the U.S. will bring issues such as domestic production, Strategic Petroleum Reserve refill, federal lands policy, and regulations to the fore “given the wide gulf separating the two parties”.

“However, despite the larger differences in rhetoric, the fact remains that the U.S. role in producing/exporting traditional energy will continue given the fact that record demand and energy security will continue to dominate the economic and national interest,” the watcher said.

“Investment in renewable energy will be more important than ESG per se but the energy transition will require infrastructure and will face some of the same regulatory and legal challenges faced by fossil fuels,” the watcher added.

“States will become increasingly important in the buildout of energy portfolios which will continue to vary widely based on the political topography,” the watcher continued.

When he was asked what themes will dominate the global oil market this year, Alex Stevens, the Manager of Policy and Communications at the Institute for Energy Research, revealed a list of the “top things” he is watching in 2024.

First on that list is geopolitics, followed by Fed interest rate policy.

“The developing conflict in the Middle East remains a concern for its potential to drive volatility in the oil market,” Stevens told Rigzone. 

“There seems to be a consensus that the Fed will start cutting rates at some point early in 2024. In general, lower interest rates reduce the cost of financing for businesses, including those in the oil industry,” he added.

“This can make it cheaper for oil companies to borrow money for exploration, production, and other activities. As a result, lower interest rates can stimulate investment in the oil sector, leading to increased exploration and production,” he continued.

Oil mergers were another topic highlighted by Stevens.

“Democrats are trying to frame the Exxon/Pioneer and the Chevron/Hess deals as some sort of anti-competitive deal that will hurt consumers,” he said.

“In many cases, consumers can benefit from firms merging through increased efficiencies and economies of scale,” he added.

Stevens also revealed that the electric vehicle (EV) market is something he will be watching this year.

“Not enough attention is being paid to the slowdown of sales in the EV market,” he told Rigzone. 

“Electric vehicles make up just one percent of vehicles in operation in the United States. The situation could get worse for electric vehicles in 2024 as fewer models will qualify for the up to $7,500 EV tax credit due to new rules based on the Inflation Reduction Act,” he added.

To contact the author, email andreas.exarheas@rigzone.com