Source: Jinshi data
The global head of commodity strategy at Royal Bank of Canada predicts that as global crude oil production slows down, the imbalance between supply and demand in the oil market may soon “turn around.”
According to Helima Croft, global head of commodity strategy for capital markets at the Royal Bank of Canada, world oil supply may become more tight this year and drive crude oil prices higher.
Croft pointed out that there are signs that the imbalance between supply and demand in the oil market may soon “turn around” as global crude oil production is about to slow. She predicted that this could lead to the international benchmark Brent crude oil price reaching $85 in the second half of 2024.
The US experienced a “heavy” year in 2023, and its oil production soared sharply, but Croft believes that it is unlikely that U.S. crude oil production will continue to last year's high level. Citing her conversations with other oil market observers at the recent International Energy Week conference, Croft predicted that US production growth could drop from 1 million b/d to 500,000 b/d this year.
In an interview on Monday, Croft said, “That's not to say... US oil production won't increase. The growth we saw last year was due to a special unique environment and will not be replicated this year.”
The same applies to major oil producers like Guyana, which may not be able to replicate the huge oil boom of 2023.
At the same time, the conflict in the Middle East also poses a major risk to the world's oil supply. Croft said that if the conflict between Israel and Hamas spills over to Lebanon, it will be a “red line” for Iran. Iran is one of the world's largest oil producers. She added, “So I really think we can't completely eliminate the risk of supply disruptions in the Middle East.”
OPEC+ is also seeking to continue to actively cut production. The oil cartel said they would extend the organization's production cut of 2.2 million barrels per day until June. Saudi Arabia, the de facto leader of OPEC, will continue to voluntarily cut production by 1 million b/d, while Russia will cut production by another 471,000 b/d.
The announcement of these extended production cuts has led to a slight increase in oil prices. On Tuesday, Brent crude traded at around $82 per barrel, up about 8% from the beginning of the year. Croft said:
“I do think market sentiment is starting to improve, but we haven't seen oil prices rise uncontrollably to $100 per barrel.”
Meanwhile, the International Energy Agency estimates that global oil demand is rising and may peak at around 1.2 million barrels per day in 2028. Occidental Petroleum CEO Vicki Hollub recently warned that this could mean a shortage in the oil market as early as 2025.
edit/lambor