Unsurprisingly, since the beginning of the year, **has been**, mainly due to daily Houthi attacks in the Red Sea waterways. At the same time, the geopolitical risk premium from the intensification of the Israeli-Hamas conflict could push the current oil price to a few dollars, and if it does come close to a Middle East peace settlement, those risk premiums could evaporate quickly, rather than be more delayed.
The global oil market faces a more uncertain outlook in terms of the balance between supply and demand. This uncertainty has led to the global benchmark exchange rate trading in a relatively narrow range.
Despite ongoing geopolitical tensions and a strong U.S. macroeconomy, market participants are finding it difficult to determine where the oil market is headed in the near term.
Both global oil and demand trends are showing signs of weakness, which complicates the future trend. As a result, uncertainty in the oil market is likely to remain in the coming weeks.
Due to a variety of factors, including weak economic conditions and the growth of electric vehicle sales in China, global oil demand growth is expected to be weak this year, and China's electric vehicle sales will continue to be an important driver of new demand. As a result, the International Energy Agency** indicates that global oil demand will only increase by 1.2 million barrel days by 2024, reaching 10.3 billion barrels per day. This increase is significantly lower than the 2.3 million barrel per day increase after last year's pandemic-induced downturn. In contrast, even if the Fed and the ECB cut interest rates early, OPEC's 2.2 million barrel per day** increase in production looks overly optimistic.
Similarly, global oil** will also slow this year, after increasing from 1.9 million barrels per day to 10.2 million barrels per day in 2023. The International Energy Agency (IEA) expects a modest increase of 1.5 million barrels per day this year, with the United States, Brazil, Guyana and Canada expected to contribute most of the new production. In addition, OPEC+ organizations' strategy of cutting production, which resulted in more than 5.5 million barrels per day cuts, is expected to continue, and there are signs that some of the voluntary cuts that were scheduled to end in April could be extended. It is worth noting that Saudi Arabia** has seen its output fall by more than 3 million barrel days and is likely to continue to bear the brunt of production adjustments. This is partly due to the fact that Saudi Arabia needs oil prices to remain at a high level to maintain its multi-year comprehensive spending plan in order to diversify its economy.
Given the large margin of error in typical expectations, the oil market appears expected to remain relatively balanced throughout the year.
However, oil prices tend to the downside when assessing the risk profile of the eventuality, even as the tail risk of a severe production disruption in the Middle East lingers. This bias is reflected in the challenges facing the economy and the Fed's insistence on slowing inflationary pressures, making global economic growth and the consequent global oil demand more likely to be lower than expected. In addition, if U.S. shale oil producers continue to improve drilling efficiency, especially by drilling longer horizontal wells, then the global market is likely to exceed expectations. In addition, tensions between OPEC+ members are likely to resurface, which could lead to an increase despite Saudi efforts to boost. Recent reports show that some cartel member states are increasingly reluctant to make further cuts***
While the current level of the oil market appears to be stable, this balance is not expected to last indefinitely. Judging by the historical volatility of ***, it is possible that oil prices will eventually break out of the current trading range. However, we have to admit that we remain uncertain about the next direction of oil prices due to the high level of uncertainty prevailing in the market. However, in summary, the outlook for oil prices is generally bearish.