PETALING JAYA: BMI, a unit of Fitch Solutions, has maintained its Brent crude oil price forecast at an annual average of US$85 (RM396.31) per barrel in 2024.
In a statement today, BMI opined that next year would be a tale of two halves.
“This involves a sharp slowdown in the first half following developed market economies would put prices under heavy pressure and as global economic growth in the second half would pass its nadir, the sentiment would strengthen the positioning of Brent for healthy gains,” it said.
Amid this choppy macro backdrop, it said the Organisation of the Petroleum Exporting Countries and its allies’ (Opec+) policy has a crucial role to play in setting Brent prices.
At their most recent meeting on Nov 30, the group opted to extend its current cuts into the new year, including the unilateral 1.3 million barrel per day curbs on crude production offered by Saudi Arabia and Russia.
BMI noted that the group has been vitally important in navigating the oil market out of its 2014 and 2020 price slumps, and while production curbs have generally been successful in supporting prices and, therefore in buoying revenues, they have come at a cost in terms of the group’s share of the market.
“We expect that the group will extend its production curbs through much of the first half, as any increases in supply would likely trigger steep losses in Brent at a time when the global economy is slowing,” it said.
BMI said, however, seasonally stronger demand during the summer months and the expectation of an economic recovery over the second half of the year should provide a point of re-entry to the market.
“That said, the return of cut barrels will have to be carefully timed and will need to progress gradually to avoid derailing any incipient recovery in prices,” it said.
While neither Israel nor Gaza produces oil in any significant volumes, BMI said there was a risk that, if the conflict were to spread, it would ultimately jeopardise Iranian exports or cargoes transiting the Strait of Hormuz.
To date, the war has remained relatively well-contained, and oil market participants seem to be rapidly discounting the probability of a further escalation.
Demand from developed markets passing its peak
BMI said its data indicated that developed markets (DMs) oil demand was passing its post-Covid-19 peak and is set to relapse once again into secular decline, marking the third ‘peak’ in demand from DMs after 2005 and 2018, and each time the recovery gets weaker and the peaks get lower.
“Improved energy efficiency, rising transport electrification and the broader shift to alternative fuels are driving accelerated oil demand destruction in DMs, most markedly in Europe.
“In 2024, these more structural drivers are being compounded by the sharp deceleration in economic activity, posing further downside risk to our current outlook,” it added.
In contrast, BMI said it held a relatively bullish outlook on demand from emerging markets (EMs) despite softening domestic oil consumption growth in mainland China, although a continued push to expand its fuel exports should help bolster the country’s crude import demand.
Moreover, excluding China, BMI forecasted that the EMs consumption growth would accelerate next year.
“The rebound in Russian demand following the outbreak of the Ukraine war forms a key part of this view.
“However, the acceleration is also being compounded by our sanguine outlook on consumption in several Asian markets, including India, Vietnam, and the Philippines,” it added.