Crude Oil Price Outlook

According to Wells Fargo, crude oil prices have recently retreated but are expected to change soon as US oil production slows.

After showing positive returns for most of 2024, year-to-date crude oil returns have recently dipped into the negative. Brent, the global benchmark price, is down 3.5%, while West Texas Intermediate (WTI) has dropped by 0.4% for the year.

Analysts attribute the decline in crude oil prices to a mix of demand and supply issues. Wells Fargo notes in a report dated September 23 that:

“On the demand side, the global economy has been slowly softening. On the supply side, markets are concerned that the world’s largest producers, OPEC+ and the U.S., will accelerate production growth.”

Although there are concerns regarding supply and demand, Wells Fargo believes these fears are already reflected in crude oil prices. They note the following:

“While global crude-oil demand has been soft throughout much of 2024, the weakness does not appear to be accelerating. This is important as global liquidity has begun to pick up, with central banks starting to cut interest rates.”

Regarding supply, both OPEC+ and the U.S. are more likely to reduce production rather than increase it, given current crude oil prices in the $60s and $70s per barrel. OPEC+ has already declared that it will not reverse planned production cuts beginning in October 2024.

The report also highlights that U.S. production growth is expected to slow soon, as the average cost to open a new shale well is around $64 per barrel.

Wells Fargo concludes:

“Crude oil prices have softened in recent months, but we suspect they will stabilize soon. OPEC+ and the U.S., the largest oil producers, have little incentive to increase production at current prices.”