The global crude oil market receives close attention from both investors looking for profits and the climate conscious looking to gauge the progress of decarbonization. Over the weekend, RBC Capital Markets energy strategist Michael Tran informed both parties with an oil outlook for 2024 that covered the major themes for the year.
Mr. Tran expects a supply-driven market next year - with production eclipsing demand in importance - and that is theme number one. Saudi Arabia will limit output but four countries - Canada, the U.S., Brazil and Guyana – are forecast to increase total liquids production (which includes natural gas liquids, or NGLs) by a combined 1.9 million barrels per day between July 2023 and December 2024.
He then ranks the overall supply and demand balance of the global oil market as the next key theme. If OPEC+ nations are compliant with announced production cuts, RBC expects a 700,000 barrel per day draw on global inventories for the first half of the year. But, only 140,000 per day on average for the full year is forecast because of rising global production outside of OPEC.
The physical supply of crude in 2024 that actually gets delivered is theme number three. Announced production cuts may not actually happen and fears of non-compliance are likely to cause commodity price volatility.
The strategy team also forecast that, without an overriding bullish or bearish case, asset managers will be short-term focused, looking to take advantage of small movements in the sector’s stocks or the commodity prices. This volatility-enhancing trend, number four in the report, includes the already aggressive, algorithm-driven commodity trading advisor funds (CTAs).
Trend five is the expectation of major refining capacity, the most in four decades, coming on stream in the next 12-18 months. The two biggest refineries are the Dangote facility in Nigeria and Dos Bocas in Mexico.
The sixth big trend is the competing effects of China and India on global demand. Auto sales in India have hit new all-time highs in each of the past three months of available data and the gasoline demand outlook is “resoundingly bright,” according to Mr. Tran. In China, on the other hand, electric vehicle sales have hit 40 per cent of the total and “the bears on peak Chinese gasoline demand are circling.”
RBC expects West Texas Intermediate and Brent crude to average US$79 and $US82.50 per barrel, respectively, for the year. Major domestic energy stocks rated “outperform” by RBC Capital Markets analyst Greg Pardy are Baytex Energy Corp., Cenovus Energy Inc., MEG Energy Corp., Enerplus Corp. and Canadian Natural Resources.
-- Scott Barlow, Globe and Mail market strategist
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Compiled by Globe Investor Staff