Crude Oil Prices Retreat but May Stabilize Soon

Investing.com – Crude oil prices have retreated recently, but this may soon change as US oil production begins to slow, according to Wells Fargo.

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

Analysts at Wells Fargo noted that crude-oil prices have given back this year’s gains due to a mix of demand and supply reasons, as stated in a note dated September 23.

Demand and Supply Factors

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

While understanding these demand and supply concerns, the bank believes they are already reflected in crude-oil prices. “Global crude-oil demand has been soft throughout much of 2024, but this weakness does not appear to be accelerating. This is significant because global liquidity has started to increase, evidenced by central banks beginning to cut interest rates,” it remarked.

On the supply side, both OPEC+ and the U.S. are more likely to reduce production than to increase it, especially as crude oil prices remain in the $60s and $70s per barrel range, the bank added. OPEC+ has already confirmed it will not unwind planned production cuts set to begin in October 2024.

For the U.S., Wells Fargo indicated that production growth is likely to slow soon, as the average cost of opening a new shale well is around $64 per barrel.

Conclusion

In summary, while crude oil prices have softened in recent months, Wells Fargo anticipates they will stabilize soon given that the world’s largest oil producers have little incentive to increase production at current prices.