With WTI crude oil prices hovering around $80 per barrel, there is growing speculation about potential downside risks as the US economy is finally showing signs of cracking. This is a stark contrast to the predictions from a month ago that prices might surge to $100 per barrel. Instead, prices softened following Israel’s measured response to Iran’s drone attacks. Adding to the bearish sentiment, the International Energy Agency (IEA) revised its 2024 forecast for global oil demand, reducing it by 140,000 barrels per day (kb/d) to an average increase of 1.1 million barrels per day (mb/d). The IEA also released a 2025 projection, anticipating a rise of 1.2 mb/d. This necessitates that OPEC+ maintains its current production cuts of just over 5.5 mb/d to keep the oil market balanced.

OPEC+ Strategy and Market Balance

For non-OPEC+ producers, the positive takeaway is that the cartel is unlikely to roll back its voluntary production cuts at the upcoming meeting on June 1. Despite internal friction and quota breaches by members such as Iraq, Kazakhstan, and Nigeria, the production strategy is primarily driven by Saudi Arabia, the UAE, and Kuwait. These three countries are responsible for about 80% of the total cuts. Saudi Arabia, in particular, has a vested interest in maintaining elevated oil prices to fund its ambitious giga projects.

Geopolitical Risks and Market Impact

On the geopolitical front, the risks have moderated. The Middle East, previously a potential flashpoint for significant crude oil production disruption, has seen a reduction in immediate threats. Israel’s decision not to attack Iranian oil infrastructure has mitigated the risk of a wider conflict that could disrupt regional oil production or affect the Straits of Hormuz. This suggests that Western powers, particularly the United States, are keen to avoid a spike in oil prices ahead of the upcoming presidential election.

Similarly, the Ukraine-Russia conflict, despite Kyiv’s drone attacks on Russian refineries, does not appear to be aimed at significantly crippling Russia’s oil export capacity. The attacks seem more focused on disrupting Russia's military efforts rather than targeting key oil infrastructure such as pipelines and ports.

Market Outlook and Key Takeaway

Given the current dynamics, crude oil prices are expected to trade within a relatively tight range. Major upside and downside risks—such as a severe supply shock in the Middle East or a breakup of OPEC+—appear limited for the foreseeable future. This stability underpins a  WTI forecast of $80 per barrel on average for 2024. The market seems poised for steady trading, influenced by balanced supply-demand factors and moderated geopolitical risks.

In summary, while there are potential downside risks to crude oil prices, the combination of OPEC+ production cuts and mitigated geopolitical threats provides a stabilizing influence. This suggests a relatively steady outlook for WTI crude around the $80 mark, barring any unforeseen disruptions.

More By This Author:

Cooler Data Striking A Favourable Chord?
US Dollar Correction: Not The Time For A Bigger Sell-Off Yet
The Fed Will Stay Dovish