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Can Brent Reach Triple Digit Levels This Year?

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  • IEA cuts global oil demand growth
  • OPEC lowers non-OPEC supply growth forecasts
  • Geo-political risk premium wanes

IEA Predicts Global Oil Demand to Slow

The International Energy Agency (IEA) on the 12 th of April cut its oil demand growth forecast for this and next year. The Paris based agency lowered its estimate of oil demand growth in 2024 to 1.2 million bpd from 1.3million bpd and 1.1 million bpd for 2025. [1] The IEA projects slower economic growth in 2024 and 2025 and growing popularity of electric vehicles (EV), which would weigh on crude prices.

IEA Anticipates Increase in Global Oil Supply

The agency predicts non-OPEC countries to substantially increase global oil supply. IEA forecasts global oil production to rise by 770K bpd to 120 million bpd in 2024. For 2025, global oil supply is anticipated to increase further by 1.6 million bpd, with non-OPEC+ potentially increasing output by 1.4 million bpd and OPEC+ contributing 220K bpd, subject to ongoing production cuts.

IEA Forecast is in Stark Contrast with OPEC

The bearish outlook of IEA is in contrast to OPEC forecasts for robust demand growth for this year and next. OPEC in its own monthly oil market report on the 11 th of April maintained its estimates for global demand growth of 2.2 million bpd in 2024, slowing to 1.8 million bpd in 2025. [2]

Despite its bearish view on oil demand, the IEA still forecasts inventory declines for much of this year, if OPEC+ keeps its current output cuts in place. The largest decline in stockpiles is likely to come in the third quarter, which coincides with the peak summer demand in the northern hemisphere.

OPEC Lowers non-OPEC Supply Growth

OPEC indicated on the 11 th of April that it is more optimistic that non-OPEC supply growth in the coming months will slow, and revised lower the expected production growth outside the bloc in 2024 and 2025.

Also, OPEC expects robust oil demand in the summer months and sees China, Middle East and other Asian countries to increase demand in 2024.

Oil Prices Forecasts Revised Higher

The EIA’s report also shed light on adjustments in global oil price forecasts. Brent crude oil prices are now projected to average $88.55 a barrel in the current year, up from earlier estimate of $87.00. Similarly, U.S. West Texas Intermediate (WTI) crude prices are forecasted to average $83.78 a barrel in 2024, up from the $82.15 estimates in March.

The revision in prices is due to expectations of a bigger oil inventories draw and ongoing geo-political risks.

Geo-political Tensions are the Main Risk to Prices

In 2023, strong growth in crude oil output from the United States, and other countries outside OPEC + have helped to offset the impact of OPEC+ production cuts. Oil prices have rallied sharply from the onset of 2024, driven by escalating Middle East tensions, attacks on Russian refineries, extensions of OPEC+ production cuts until June and signs of potential rise in crude oil demand. The geo-political conflict in the Middle East is seen as one of the main drivers behind oil’s rally, as further escalation could lead to supply disruptions, which would keep oil prices elevated in 2024.

A graph showing the stock market

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Source: TradingView

Technical Analysis

The widely perceived strength in oil demand has been one of the main drivers behind Brent’s 18% gains YTD, along with tighter supplies and geo-political tensions in the Middle East. After bottoming at $73.01 in mid-December 2023, Brent prices rebounded strongly from its support and appear headed for a re-test of its previous key resistance of $97.43.

While initial hesitation could be seen around that level of resistance, a subsequent break above it is highly likely in our view as crude is approaching its seasonally strong period – the summer months in the northern hemisphere.

Conclusion

While the EIA’s and OPEC reports offer valuable insights into production, demand growth forecasts, and average oil price estimates, the influence of geo-political tensions in the Middle East remains a key risk to oil markets. Further escalation of the conflict in the region would undoubtedly exert upward pressure on oil prices.

Professional traders seeking exposure to crude oil may opt for either Leverage Shares Brent Oil ETC or Leverage Shares WTI Oil ETC. Traders looking for magnifies exposure may consider Leverage Shares +2x Long WTI Oil or -2x Short WTI Oil ETPs.

Footnotes:
  1. https://www.iea.org/reports/oil-market-report-april-2024
  2. https://www.opec.org/opec_web/en/publications/338.htm
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

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For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

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Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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