DIGIVESTASI - Oil investors will enter 2024 with concerns that oversupply, slowing economic growth, and rising tensions in the Middle East could lead to price volatility.

Brent oil prices have averaged around $80 per barrel this year, after a turbulent 2022 that saw prices rise above $100 due to Russian supply disruptions from the war in Ukraine. Oil prices so far this year have been pressured by a strengthening dollar and the threat of non-OPEC production, even as demand has reached record highs of more than 100 million barrels per day.

A Reuters survey of 30 economists and analysts found that the average price of Brent crude will be $84.43 per barrel by 2024. This forecast comes even as the International Energy Agency (IEA) estimates that demand will recover strongly next year, from 1 million barrels to barrels daily. Meanwhile, OPEC's plan is even more optimistic, reaching 2.25 million barrels/day by 2024.

Meanwhile, Rystad Energy consultants J.P. Morgan, Kpler and Wood Mackenzie said supply in 2024 is expected to increase by 1.2 million to 1.9 million barrels per day, led by non-OPEC producers. "We expect the market to be oversupplied every quarter next year," said Vikas Dwivedi, global energy strategist at Macquarie, as quoted by Reuters, Thursday (14 December 2023).

Several factors will determine the main sentiment towards oil prices next year. First, OPEC+ compliance with the production cut agreement in the first quarter of 2024. Investors are watching first-quarter supply data to see if OPEC and its allies, known as OPEC+, will adhere to a voluntary plan to reduce aggregate output to 2.2 million barrels per day. ANZ estimates that if they comply, there will be a small deficit of less than 500,000 barrels per day.

"The first quarter will be critical as we can assess compliance with OPEC+'s voluntary supply cuts," said Woodmac's Ann-Louise Hittle. She added that OPEC+ does not need to extend the voluntary cuts beyond the first quarter, based on Woodmac's current demand forecast. Meanwhile, Energy Aspects expects Saudi Arabia to ease production cuts in the second quarter after explicitly mentioning a gradual recovery in supply.

However, this will not prevent Saudi Arabia from fully extending supply cuts if needed. Second, supplies from Russia, Iran, and Venezuela. Venezuelan oil supplies have returned to the global market since Washington suspended sanctions against the OPEC producer for six months. According to JP Morgan analysts, a six-month extension is possible as long as President Nicolas Maduro's administration adheres to the electoral roadmap agreed with the opposition for presidential elections.

"Presidential elections in late 2024 in both countries will determine the long-term fate of US sanctions and Venezuelan oil production," they added. By lifting sanctions on PDVSA, Venezuela's national oil company will gradually increase the country's oil production from 760,000 barrels/day in 2023 to 880,000 barrels/day in 2024 and 963,000 barrels/day in 2020.

Meanwhile, according to traders, the resumption of oil production shipping to Venezuela Crude oil supplies from the United States and India could reduce demand for competing grades such as Basrah Heavy in Iraq and Cold Lake in Canada. More US crude could be available for export to Asia as Gulf Coast refineries process more Venezuelan oil.

Analysts expect Russian and Iranian oil to continue flowing into global markets despite sanctions, which will keep oil prices low ahead of the US election. Iran targets crude oil production of 3.6 million barrels per day by March 2024, up from the current 3.4 million barrels per day. Third, the arrival of new refineries. Restrictions on refined products, particularly diesel, following Russia's invasion of Ukraine, will be eased by the introduction of more than one million b/d of new refining capacity, analysts say, in China, India, Mexico, the Middle East and Nigeria by 2024.

These include China's new company Yulong Petrochemical, the expansion of the Panipat and Koyali refineries in India, the Dangote project in Nigeria and Dos Bocas in Mexico. Fourth, the quality of crude oil is inconsistent. Non-OPEC producers, led by Brazil, Guyana and the United States, will drive production growth in 2024, increasing the supply of light and sweet oils, while medium-sour oils will control OPEC+ production cuts. Macquarie's Dwivedi said this could narrow the price gap between crude oil qualities globally.

This happens in the context of mid-grade crude oil trading close to parity at slightly weak prices with a typical discount of 2-4 USD/barrel. At the same time, the differential between heavy and light crude may narrow to around 4 USD/barrel, from 8 USD/barrel previously. Supply Chain Changes Much of the refining capacity in China, India, and the US is designed to produce heavier crude, which may reduce supply as refineries come back online after shutdowns.

"This complicates refinery yield optimization and limits operational flexibility to expand product offerings," said Mukesh Sahdev of Rystad Energy.  Alan Gelder, analyst at Woodmac, said China and India will increase sourcing of crude from the Atlantic basin, while Asia and the US will compete for large quantities of crude. The US and India may look to Venezuela for more heavy crude, while China and India are expected to continue to rely on supplies from Russia and Iran. "India is a controversial country, so the profitability of operations in India will increase," said Viktor Katona, analyst at Kpler.