FY24 Review | Brent rises nearly 9% in last 12 months on OPEC cuts, Middle-East tensions; Will oil hit $100 in FY25?

Among other reasons, Ukraine’s drone attack on Russian refineries and OPEC extending its supply cuts till mid-2024 have also dictated the movement of crude oil prices. Overall, the Brent crude’s highest mark achieved in FY24 was $97.69 per barrel in September 2023, after the Israel-Hamas war breakout. The lowest was $71.28 per barrel in May 2023, ahead of OPEC’s June policy meeting.

How have crude prices moved in FY24?

-In April 2023, OPEC+ announced oil production cuts of around 1.16 million barrels per day (bpd) in a surprise decision. The shock cut, led by Saudi Arabia, immediately drove crude oil prices 8 per cent higher to $83.95 per barrel, which at the time – was the highest rise in more than a year then. The voluntary cuts started from May 2023 and were put in place to last until the end of the year.

-OPEC+ met for its scheduled oil output policy decision in June 2023 and announced that it will reduce overall production targets from 2024 by a further total of 1.4 million bpd. OPEC nations produce around 30 per cent of the world’s crude oil. Saudi Arabia is the largest oil producer within the cartel, producing more than 10 million bpd. OPEC+ pumps around 40 per cent of the world’s crude.

-However, Saudi Arabia, OPEC cartel’s dominant member, announced that it will alone make deep production cuts of 1 million bpd starting from July, as part of a broader output-limiting OPEC+ deal as the group faces flagging oil prices and a looming supply glut. The rest of the OPEC producers then had agreed to extend earlier cuts in supply through the end of 2024.

-A month later, Russia joined Saudi to announce an extra oil export curb of 300,000 bpd. In September, Saudi Arabia and Russia together announced that will extend with the oil supply curbs of more than 1.3 million bpd till the end of the year. The production cuts first announced by the oil majors in July led to a sharp surge in international crude prices – reaching almost one-year high levels.

-By the end of September 2023, crude oil prices had risen 30 per cent in three months, with Brent staring at the $100/bbl-mark, over the supply cuts by the oil producing majors. US West Texas Intermediate crude (WTI) rose 29 per cent and Brent futures surged 27 per cent between July-September.

-In October 2023, the Israel-Hamas war drove crude oil prices between 3-6 per cent, however, the momentum could not be sustained as global demand concerns outweighed the impact of supply cuts. In its November 30 policy meeting, the OPEC+ agreed to a combined 2.2 million barrels per day (bpd) in output cuts for the first quarter of next year. 

-Stepping into 2024, oil prices were largely range-bound till February end, but rose to a five-month high in March 2024 after Ukraine’s drone attack on Russian refineries. Brent hit the $87 per barrel-mark over the persistent geopolitical tensions. The OPEC+ cartel also extended voluntary oil output cuts of 2.2 million bpd into the second quarter or mid-2024.

Crude price outlook for FY25: Will Brent hit $100/per barrel mark?

Commodity analysts and brokerages have raised their respective outlook for Brent crude futures in FY25 after the recent uptick in prices, largely over geopolitical headwinds. Some believe that oil markets are oversupplied by the US and hence, OPEC is losing its market share by artificially raising prices.

—Near-term price outlook:

Earlier this month, Mohammed Imran, Research Analyst at leading domestic brokerage ShareKhan Commodities by BNP Paribas told LiveMint in an exclusive interview that he experts Brent crude to average between $87-$92 per barrel for 2024 as the expected June rate cuts from US Fed will boost the growth sentiment.

Imran also revealed that US is producing more crude oil than any nation at any time for the past six years in a row, according to Energy Information Administration (EIA). US output was 13.1 mbpd in 2023, which is expected to further jump to 13.19 mbpd in 2024 and 13.65 mbpd by 2025 and this record is unlikely to be broken by any nation in the near term.

According to ICICI Bank, the upside bias is emerging from geopolitical conflicts and crude prices are likely to trade accordingly in the near-term. ‘’In the near-term, the prospect of continued geo-political tensions could result in a possible overshoot in prices. We see an upside possibility of $90/bbl to $95/bbl emerging in the near-term,” said ICICI Bank in its research report.

—Full-year outlook:

Apart from the near-term price outlook, ICICI Bank research has raised its range from $75 per barrel to $85 per barrel in second quarter (Q2 2024) to $80 per barrel to $90 per barrel to take in to account the geopolitical uncertainty premium that could persist.

‘’However, we assume that an easing in geo-political tensions pushes Brent crude prices lower to the $75 per barrel to $85 per barrel range in the H22024,” said economists at ICICI Bank. On balances, the higher profile for prices over Q2 2024 has resulted in an increase in the average Brent crude price forecasts from $80 per barrel to $83 per barrel.

Global brokerage house Morgan Stanley also sees Brent crude oil prices hitting $90 per barrel this summer. The brokerage has revised its Brent oil price projections upward by $10 per barrel to $90 for the third quarter of 2024.

The brokerage also revised its price forecasts for various quarters. The first-quarter outlook has been raised to $85 per barrel from $82.5, while the second-quarter forecast now stands at $87.5, up from $82.5. Moreover, for the fourth quarter, the bank anticipates prices to reach $85, compared to the previous projection of $80.

The adjustment is attributed to tighter supply and demand dynamics resulting from OPEC+ commitments and Russia’s decision to curtail oil production following recent drone attacks on its refineries.

On possibilities of Brent touching $100 per barrel-mark in FY25, ShareKhan’s Mohammed Imran said, ‘’Unless we see escalation of middle eastern war turning into a full blown-up war involving major producers in the region, we are unlikely to see Brent touching $100 mark. ‘’This, despite an increasing global demand in second half as OPEC+ is artificially curtailing production and losing market share in order to maintain Brent above $80,” he added.

‘’So, we expect Saudi Arabia led OPEC+ to change its policy stance once demand is in place. Brent crude could average $90-$92 for 2024 and MCX prices could test the resistance of ₹7,200/b by end of 2024,” said Imran.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 30 Mar 2024, 09:12 PM IST