Crude Oil Prices Outlook by Wells Fargo

Investing.com – Crude oil prices have retreated recently, but changes may come soon as US oil production starts to slow down, according to Wells Fargo.

After being positive for most of 2024, year-to-date crude oil returns have recently slipped into the negative. Brent, the main global benchmark, is down 3.5%, while West Texas Intermediate (WTI), the main US benchmark, is down 0.4% for the year.

The decline in crude oil prices has been attributed to various demand and supply factors, according to a note from Wells Fargo dated September 23.

On the demand front, the global economy has been softening gradually. On the supply side, there are concerns that the world's two largest producers, OPEC+ and the U.S., might accelerate production growth, Wells Fargo stated.

While acknowledging the demand and supply concerns, the bank believes they are already reflected in crude oil prices. Despite global crude oil demand being weak through much of 2024, this weakness does not seem to be intensifying. This is significant as global liquidity has begun to improve, evidenced by central banks starting to cut interest rates.

Furthermore, both OPEC+ and the U.S. are more inclined to reduce production rather than increase it, especially with crude oil prices hovering in the $60s and $70s per barrel. OPEC+ has indicated it will not reverse planned production cuts set to start in October 2024.

Wells Fargo also forecasts a slowdown in US production growth due to the average cost of opening a new shale well being near $64 per barrel.

Conclusion: Crude oil prices may have softened recently, but Wells Fargo suspects they will stabilize soon as OPEC+ and the U.S. have little incentive to increase production at current prices.