As the price of Brent crude oil gets closer to the $80/barrel mark, market observers take notice.
Brent is trading at $78.30 as of October 2024, a close mark to $80. The market faces a mix of supply constraints and uncertainty.
Over the past few months, Brent’s price has steadily increased. This could be connected to a tight supply caused by production cuts by OPEC+ as well as fluctuations in demand in international markets.
The West Texas Intermediate (WTI), another major oil benchmark, is also priced at $74.30 per barrel, also down slightly.
However, Brent is the major focus globally, as it serves as a pricing reference for many international markets across Europe, Africa, and parts of Asia.
Limitations in Supply
A major reason behind the rise in Brent’s price is the decision by OPEC+ members to continue with substantial output cuts through 2024.
According to Opec+, these countries voluntarily participated to support market stability.
These voluntary cuts have taken around 2.2 million barrels per day (bpd) off the market since early 2023, and they are expected to remain in place for the remainder of the year. Saudi Arabia, in particular, has led these cuts.
The members, including major producers such as Russia and the UAE, have opted for a more cautious approach to returning supply to the market.
The market is currently experiencing a severe supply deficit, but some additional supply is anticipated to be restored by the end of the year through a gradual reintroduction.
This tactic has worked well to support prices, especially in light of the recent decline in global products.
Demand Perspective
On the demand side, the oil market has seen a mixed picture.
Strong consumption from countries like the United States and India has helped support prices, but growing concerns about a global economic slowdown could temper future demand.
China, in particular, remains a key player to watch, as its economic recovery from pandemic-related slowdowns has been uneven. Any further weakness in Chinese demand could weigh heavily on oil prices in the months ahead.
High inflation and the aftereffects of the Russia-Ukraine war, which have disrupted energy supplies throughout the continent, are other issues plaguing European economies. Although there has been a strong demand for energy in Europe, worries about a potential recession could reduce the market for crude oil.
Will Brent Crude Cross $80?
Despite the uncertainty, a lot of analysts think that before the year is out, Brent crude might surpass the $80 mark; however, this rally might not last long.
The U.S. Energy Information Administration (EIA) projects that, Brent crude will average $89 per barrel due to continuous supply constraints, in the second half of 2024.
The EIA expects that the current supply deficit will ease slightly in 2025 as global inventories recover, leading to a modest drop in prices to around $88 per barrel next year.
However, there are risks to this outlook.
One factor is the Middle East. Tensions in the region have been known to lead to spikes in oil prices, as any disruption to supply routes could have a dramatic impact on the global oil market.
Recently, concerns about escalating conflict between Israel and its neighbours, as well as ongoing instability in Libya, have added a risk to oil prices
Russia is also involved in the oil market, as it is a member of OPEC+ and due to its role in the Ukraine conflict, it can add an element of unpredictability.
Any notable changes to Russian oil policy or additional sanctions against Russian exports could disrupt the supply and drive up prices even further.
Prices are rising due to ongoing production cuts and strong demand, which could have an impact on the economy and fuel prices. The big question is: how much higher can prices go before a long-term solution is found?
