Looking ahead to 2024, the biggest wild cards include demand from China and cohesion within OPEC+.
U.S. oil production is not expected to increase next year as it did in 2023.
Crude prices fell 10% in 2023 as rising U.S. supplies offset cuts from Saudi Arabia and Russia.
Crude oil prices saw wild swings in 2023 before ending the year down 10%, and greater volatility could occur in 2024.
The main driving forces in oil markets have delivered big surprises over the past year and represent significant sources of uncertainty in the new year.
Here’s what could shake up the oil market, analysts say, from OPEC’s weakening price controls to China’s economic slowdown.
OPEC+
The cartel has failed to support oil prices by reducing their production, in part because non-OPEC countries like the United States, Brazil and Guyana have retained fill the hole. And new OPEC+ promises to extend cuts until early 2024 are failing.
“I don’t want to say they’re out of ammunition, but they’re kind of out of ammunition,” Rebecca Babin, senior equity trader at CIBC Private Wealth, told Business Insider.
Analysts say its ability to work together and manage the market is in question. OPEC’s last meeting in November was chaotic, with members struggling to agree on cuts. Earlier this month, Angola announced he would leave the group.
“I think the main risk to the market is OPEC cohesion, or lack thereof,” said Hunter Kornfeind, an oil analyst with Rapidan Energy.
Saudi Arabia
The de facto leader of OPEC has traditionally intervened to restore order within the oil group and throughout the market. An energy expert earlier warned that Saudi Arabia could lead a market share war with the United States next year to regain control of oil prices.
But Riyadh has other priorities that could prevent it from increasing supply to drive down prices and profits, forcing other producers out of the market.
Saudi Arabia has many major infrastructure projects underway at the end of this decade, said Homayoun Falakshahi, an oil analyst at research firm Kpler.
The kingdom will host the 2029 Asian Winter Games, the 2030 World Expo and the 2034 FIFA World Cup, which will require a lot of money, and the country’s budget depends on oil.
China
The world’s top oil importer has been rocked by a housing crash, debt crisis and lackluster growth resulting from COVID, which have weakened demand.
Babin recently said doubts about China’s economy would be the oil market’s biggest concern in 2024, followed by concerns that U.S. production will continue to outperform.
Still, demand is expected to grow in China as new refineries ramp up operations, Falakshahi told Business Insider.
“All this means we still expect Chinese demand for crude to increase year on year, but it won’t be huge,” he added.
American supply
In 2023, booming American production caught markets off guard, helping non-OPEC countries take market share from countries like Saudi Arabia. But analysts don’t expect these surprises to repeat themselves next year.
“We expect a slowdown (in U.S. production), especially in the first half,” Falakshahi said. “And this is actually linked to the decline in activity in the United States.”
This year’s U.S. oil boom has been largely driven by a surge in efficiency, which will be difficult to repeat.
Kpler expects U.S. crude oil production to fall to 13.14 million barrels per day, down from a record 13.3 million recorded earlier this month.
Meanwhile, Rapidan projects production of 13.3 million to 13.4 million barrels per day in 2024, and CIBC’s Babin said he expects only slight changes.
“I’m not afraid of this number of repeats from 2023,” she said.
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