Q4 2024: A Bearish Drift as Supply Concerns Ease
I. Quarterly Snapshot: Prices Retreat as Supply Picture Strengthens
The final quarter of 2024 saw the oil market's Q3 rally lose steam and reverse, with prices drifting lower into year-end. The bearish shift was driven by a combination of factors, including a weakening macroeconomic climate that dampened demand growth expectations, and a surprisingly robust supply performance from non-OPEC+ producers, particularly the United States. The extension of OPEC+ production cuts, announced in late November, did little to halt the price slide, as the market appeared increasingly confident in the availability of supply from outside the group.
II. Global Hydrocarbon Market Dynamics
Market sentiment turned decidedly bearish as the quarter progressed, erasing the price gains from the previous quarter.
Crude Oil Market Analysis
Price Decline: Oil prices fell steadily. Brent crude, which had averaged over $93/bbl in September, declined to an average of $77.63/bbl by December. The price rout saw Brent tumble by about $25/bbl from its September highs to its lowest levels in six months by early December.
Demand: The demand outlook softened considerably. The IEA's December report noted a further weakening of the macroeconomic climate, revising down its forecast for Q4 demand growth by almost 400 kb/d. Europe was particularly soft, and China's demand, while still growing, was losing momentum amid a broad manufacturing and industrial slump.
Supply: The supply side was a key driver of the bearish sentiment. U.S. oil supply growth continued to defy expectations, with production shattering the 20 mb/d mark (including all liquids). This, combined with record production from Brazil and Guyana and surging Iranian flows, lifted total world output. The IEA noted that the U.S. was on track to deliver a supply increase of 1.4 mb/d for the year, accounting for two-thirds of the total non-OPEC+ expansion.
Inventories: After drawing sharply in Q3, global observed inventories began to stabilize and even build in some regions. The IEA noted that oil on water built by 23.5 mb in October, a sign of a well-supplied market.
Natural Gas Market Analysis
Natural gas prices remained weak. In the U.S., the EIA's December STEO noted that the country started the winter season with 6% more natural gas in storage than the five-year average, due to a warm start to the winter. This kept Henry Hub prices low, with the EIA forecasting an average of about $3.00/MMBtu for the rest of the winter.
III. The Geopolitical and Policy Arena
Producer policy attempted to counter the bearish trend, but with limited success.
OPEC+ Meeting (November 30, 2023): Facing a sharp price decline, several key OPEC+ members, led by Saudi Arabia and Russia, announced an extension of their voluntary production cuts, totaling 2.2 million b/d, through the first quarter of 2024. However, the market reaction was decidedly negative. The fact that the cuts were "voluntary" and announced by individual countries rather than the group as a whole raised doubts about compliance and cohesion. The market largely shrugged off the announcement, with prices continuing to fall.
Russia Price Cap: Russian crude export prices declined sharply in November, with the Urals grade falling below the G7's $60/bbl price cap. This, combined with lower shipment volumes, caused Russia's export revenues to fall by 17% month-on-month to $15.2 billion, their lowest level since July 2023.
COP28 Agreement (December 2023): The landmark agreement at COP28 to "transition away from fossil fuels" solidified the long-term policy headwinds facing the oil and gas industry, even as the immediate market grappled with short-term supply and demand dynamics.
IV. The Accelerating, and Contested, Energy Transition
The outcomes of COP28 dominated the energy transition conversation. The global pledge to triple renewable energy capacity and double energy efficiency by 2030 set a clear path for the decade. For the oil and gas industry, this reinforced the long-term challenge of navigating a world increasingly focused on decarbonization, even as their products remain essential to the global economy.
V. Corporate Landscape: Strategy and Consolidation
The major M&A deals announced in Q3 (Exxon-Pioneer, Chevron-Hess) continued to be a central focus. These deals highlighted a strategy of consolidation and a focus on low-cost, high-quality assets as the industry prepared for a more uncertain long-term demand environment. The deals were seen as a move to build resilience and secure future cash flows.
VI. Synthesis and Forward Outlook
The final quarter of 2023 demonstrated the market's renewed focus on the power of non-OPEC+ supply. While OPEC+ attempted to support prices with production cuts, the market was more impressed by the relentless and better-than-expected output from the United States, Brazil, and Guyana. This surge in supply, coupled with a deteriorating demand outlook, was enough to completely unwind the price rally of the third quarter.
The market's skeptical reaction to the November 30 OPEC+ announcement was telling. It signaled a belief that the voluntary cuts would not be enough to offset the wave of new supply coming from the Americas. The market had shifted its focus from the discipline of OPEC+ to the surprising resilience of U.S. shale and other non-OPEC+ producers.
The year 2023 thus ended much as it began: with the market caught in a tug-of-war between competing supply narratives. The key questions for 2024 were clear: Could the remarkable growth from non-OPEC+ producers be sustained? Would OPEC+ be forced to extend or even deepen its cuts to prevent a price collapse? And would China's economy stabilize, or would its weakness continue to drag on global demand? The stage was set for another year of uncertainty and volatility.