Market factors that may push Brent oil futures to $90 in 2024

Over the past few weeks, global crude oil prices have flattered to deceive the market bulls. Many in the bullish corner, perhaps contrary to wider perceptions, do not see a Brent price of $85 a barrel as a high enough ceiling given the current market permutations for the global proxy benchmark.

While the clamor for triple-digit crude oil prices has largely subsided in the second quarter of the trading year, the new high for the third quarter happens to be $90 a barrel.

This avoids the fact that Brent futures barely managed to stay above $85 and at one point fell below $80 after the last OPEC+ meeting. In June, the select group of oil producers led by Russia and the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, decided to phase out some of the additional production cuts.

It gave many short sellers carte blanche to oversell at this time. But that didn’t last either, as Brent futures returned to their familiar range patch, hovering between $80 and $85. So, could there be a plausible rally to a new high of $90 and how could the market get there?

Five factors that may drive oil to $90

A combination of five factors could propel Brent crude to $90. First, we are at that point in the trading cycle where Northern Hemisphere summer demand takes center stage. Many look closely at seasonal demand during the US summer, as well as jet fuel demand. The picture for the latter looks encouraging but mixed, while expectations of an interest rate cut by the Federal Reserve may boost US consumer confidence, leading to higher fuel demand.

Second, a weaker dollar, in light of expectations of an interest rate cut, may also increase buying by major emerging markets (EMs) that pay for black gold in dollars, and often expensively so when the dollar is stronger against EM currencies.

Third, after a weak start to the year and below 5% GDP growth, many in the market are pinning their hopes on economic stimulus from China following the conclusion of the third plenary meeting this week. This may improve crude demand and provide comfort to oil bulls who have (until now) only had India’s robust demand to rely on among global importers.

Fourth, while OPEC+ will phase out its additional 2.2 million barrels per day (bpd) cuts, the producer group will still keep 3.66 million barrels per day off the market until the end of the year 2025. Also of note, Saudi Energy Minister Prince Abdulaziz bin Salman said that OPEC+ could pause the rollback of production cuts or even reverse them if demand is not strong enough in the second half of the year.

Fifth and finally, the global geopolitical picture remains fraught. The Israel-Hamas war in Gaza is nowhere near a resolution and continues to fuel further tensions in the region. These include attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels in Yemen and ongoing clashes between the Israel Defense Forces and the Iran-backed Hezbollah militia in Lebanon. The region appears on the edge and there is considerable uncertainty. Similarly, the Russia-Ukraine war continues tragically and the Ukrainians continually target Russian oil and gas infrastructure.

Five reasons why Brent probably won’t hit $90?

But even all this may not be enough to reach Brent’s ceiling of $90. For starters, China’s stimulus is unlikely to be on the scale of past economic interventions seen frequently over the past decade. While it may be slightly bullish for oil, the Chinese stimulus is unlikely to significantly counter other factors weighing on the market.

Second, while OPEC+ may hamper oil, non-OPEC production, particularly that of the US, along with Canada, Brazil, Norway and Guyana, continues at a steady pace. This may have created a scenario where the year could end with a minor surplus in light sweet crude as well as a small deficit in heavy crude. And if OPEC’s disciple collapsed, all bets are off.

Third, not only did higher US crude production boost non-OPEC supply, but it also led to lower overseas crude imports. This has effectively recalibrated the level of the market’s geopolitical risk premium, which is now nowhere near what it was at the beginning of the last decade. We are currently talking about low single-digit geopolitical increases in the event of an alarming development, compared to the low double-digit peaks of the past. More importantly, so far none of the fighting in the Middle East has directly affected oil and gas infrastructure.

Fourth, the market has two major sellers of discount oil in the form of Iran and Russia, saddled with Western sanctions, which find takers in two of the biggest crude consumers in India and China. Even if the discount they offer is a notional dollar or two, it matters for the demand for services, and quite a bit, at lower prices in the physical market.

Ultimately, the demand picture remains unclear. Maybe summer can provide some clarity. As things stand, both OPEC and the International Energy Agency (IEA) remain far apart in their demand growth forecasts. The latter puts it south of 1 million barrels per day (bpd), while the former insists it will likely be above 2 million bpd by the end of the year. And even if it’s in the modest middle, increasing non-OPEC supply can serve itself as it stands.

So, counterbalancing both the upside and the downside, and barring any unexpected major macroeconomic upheavals and an implausible all-out war that will have a direct impact on energy infrastructure, we expect Brent futures to likely oscillate in the $75-$85 range.