Forecast Update - June 2024
Update of Brent and WTI forecasts.
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At the beginning of each month, we will be sending you an email like this with an updated forecast of energy prices. Commodia brings together top academic economists who specialize in the analysis of global energy markets. The team has more than 20 years of experience from leading universities across the United States, Canada, Europe, and the Asia Pacific. Our forecasts are based on state-of-the-art forecasting techniques to predict energy commodity prices.
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🛢️Oil Market May Summary
In May 2024, the oil market is characterized by a mix of supply adjustments, demand fluctuations, and geopolitical influences. Key factors shaping the market include global economic activity, inventory levels, and production strategies of major oil-producing countries.
Supply and Production Trends:
Global Supply: Global oil supply is projected to increase by 580 thousand barrels per day (kb/d) in 2024, reaching 102.7 million barrels per day (mb/d). This growth is primarily driven by non-OPEC+ countries, which are expected to add 1.4 mb/d, while OPEC+ production decreases by 840 kb/d due to voluntary cuts (IEA).
Regional Production: Countries such as the United States, Guyana, Canada, and Brazil contribute significantly to the increase in non-OPEC+ output. However, the pace of US supply expansion is expected to decline (IEA).
Demand Outlook:
Global Demand: Oil demand is set to rise by 1.1 mb/d in 2024, slightly less than previous projections, due to weaker deliveries, particularly in Europe, leading to a contraction in OECD demand. The forecast for 2025 shows a marginally higher growth rate of 1.2 mb/d (IEA).
Sector-Specific Demand: Demand for middle distillates such as diesel and jet fuel has notably declined, especially in Europe, where a shift away from diesel vehicles and mild winter weather has reduced consumption (IEA).
Price Movements:
Brent Crude: The spot price of Brent crude oil averaged $90 per barrel in April but fell to around $83 per barrel in early May. This decline is attributed to improved macroeconomic sentiment and progress towards a truce in the Middle East, which eased concerns over supply disruptions (EIA, IEA).
Market Sentiment: Investor sentiment has been influenced by geopolitical tensions and economic indicators. The recent sell-off in the oil market has been driven by concerns over global economic health and weaker-than-expected demand growth (IEA).
Inventory Levels:
Global Inventories: In March, global oil inventories surged by 34.6 million barrels, driven by increased oil on water. Conversely, on-land stocks fell to their lowest levels since 2016. Preliminary data suggest further stock builds in April, contributing to the current market dynamics (IEA).
Geopolitical Factors:
Middle East Tensions: Geopolitical tensions, particularly between Iran and Israel, have added uncertainty to the market. Despite these tensions, crude oil price volatility has been relatively subdued due to significant spare production capacity (EIA).
🟧 Commodia - Forecast Update of Brent
Commodia predicts that the spot price of Brent crude oil will be an average of $80.72 for June 2024. We forecast an average value of $82.68 for September 2024 and $83.19 for December 2024. We expect an average price of $85.66 for June 2025 and $89.95 for June 2026.
📈 Comparison to ICE forecast
Our forecast is around 0.03% higher compared to the ICE Brent1 crude oil futures contract in June 2024. Our long-term forecast is about 10% higher one year ahead (June 2025) and 21% higher two years ahead (June 2026) compared to the ICE Brent crude oil futures contracts.
🟥 Commodia - Forecast Update of WTI
Commodia predicts that the spot price of WTI crude oil will be an average of $79.09 for June 2024. We forecast an average value of $79.24 for September 2024 and $79.72 for December 2024. We expect an average price of $81.43 for June 2025 and $83.92 for June 2026.
📈 Comparison to NYMEX forecast
Our forecast is around 2.6% higher compared to the NYMEX WTI2 crude oil futures contract in June 2024. Our long-term forecast is about 13% higher one year ahead (June 2025) and 20% higher two years ahead (June 2026) compared to the NYMEX WTI crude oil futures contracts.
🗝 Key drivers of Commodia’s crude oil forecast from the previous month
The key variables of Commodia’s crude oil forecast (Brent and WTI) are Global Fuel Consumption, Global Economic Conditions and OECD Petroleum Inventories. The main changes to our oil price forecast from May 2024 to June 2024 is that Global Economic Conditions have put downward pressure on oil prices.
This has implied that the long-term forecasts for oil prices have been revised downwards (13 percent for Brent, and 20 percent for WTI two years ahead).
The main determinants of Global Economic Conditions are shown in the figure below:
Chart of Main Drivers of Global Economic Conditions from Christiane Baumeister & Dimitris Korobilis & Thomas K. Lee, 2022. "Energy Markets and Global Economic Conditions" The Review of Economics and Statistics, 104(4), 828-844.
The main determinants of Global Economic Conditions are shown in the figure above for the period January 2020 to May 2024.
For more details about the Global Economic Conditions index visit: https://sites.google.com/site/cjsbaumeister/research
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Commodia Team
www.commodia.com
ICE: The data for ICE Brent crude oil futures contract is from https://www.theice.com. The data is downloaded and updated at the beginning of each month. Linear interpolation is performed when ICE monthly observations are not available.
NYMEX: The data for NYMEX crude oil futures contract is from https://www.cmegroup.com. The data is downloaded and updated at the beginning of each month. Linear interpolation is performed when NYMEX monthly observations are not available.