Energy Markets 2024

Energy products observed varied fluctuations in 2023. After opening at $80.40 per barrel, crude oil plunged to a record $63.69 per barrel in May, lowest since January 2022. However, bullish momentum took over thereafter and prices rebounded to $95.02 in September. Crude oil closed 2023 at $71.38 per barrel. Having witnessed a bullish 2022, natural gas experienced a downward trend in 2023. Opening at $4.455 per MMBTU, natural gas nosedived for a couple of months before recovering at the end of the year to close at $2.524 per MMBTU. So far, 2024 has displayed a mixed trend with crude oil experiencing a bullish January while natural gas plunged further. What will 2024 bring to the energy sector? Here are a few factors driving the energy products in 2024.

OPEC

The Organisation of the Petroleum Exporting Countries (OPEC) moved the markets in 2023. Looking back, the activities aligned with two out of three daily price movements. However, due to changing dynamics, the value of OPEC is declining as other productions around the world are increasing. OPEC is reporting US production hikes of 1.2 million barrels per day by the end of the year when demand is dropping. With OPEC and OPEC+ member nations agreeing upon production cuts till March 2024, traders will search for clues for the ensuing future. Will OPEC agree on adequate cuts supporting oil prices or will the financial markets lose the OPEC stronghold that had prevailed since time immemorial?

El Nino and Natural Gas

Weather patterns have influenced heating demand and prices of natural gas. It is widely accepted that El Nino will be the major factor to watch in 2024. According to an El Nino event, the surface water of central and eastern Pacific Oceans will become warmer than normal leading to fluctuations in pressure, wind and rainfalls. According to the National Oceanic and Atmospheric Administration (USA), a 54% chance is there that El Nino event will end up ‘historically strong’, ranking it in the top five.

This evolving weather pattern is creating drier-than-average conditions across the northern tier of the US while wetter-than-average situations are expected in Northern Alaska and parts of the west and south. As per natural gas consumption figures, the previous year ended with warmer-than-normal temperatures. Strong storage and record production levels have intensified the bearish movement in the prices of natural gas. Will the estimated ‘historically strong’ El Nino continue to exert selling pressure on the natural gas prices in 2024?

Rebounding Jet Fuel

Since Covid 19 hit the airline industry, jet fuel demand has lagged behind, estimated to be down by more than 10% in 2023 from pre-pandemic numbers. Total airline capacity climbed by 0.3 billion, a significant hike of 15.8% in the winter period compared to 2022. Robust carrier growth from China, Korea and Hong Kong had supported this bullish growth. It has set the example for change in 2024 with jet fuel set for a sharp rebound. Air travel demand is estimated at 4.7 billion passengers in 2024, exceeding the record level of 4.5 billion set in 2019 as per the forecasts by International Air Transport Association (IATA). These changing dynamics could repeat this year as refiners adjust their productions to meet growing demand.

Brent Crude Related Pricing

The previous year marked a record year for the US in terms of production and exports. Cargos of WTI Midland were added to the Brent assessment in the middle of 2023 with the European counterparts importing more light sweet US crude oil than the North Sea suppliers. This transformation links the Brent benchmark to US crude oil and explicitly makes the role of WTI as setting the global prices. European refiners have commenced pricing supply directly linked to WTI. However, producers who have historically linked their oil sales to Brent are exploring implications of WTI on their generated revenues. Likewise, the impact on Asia should not be ignored. The Asian region imported record levels of US oil despite competition from Russian producers.

Conclusion

The factors above are a few from a long list of evolving dynamics in 2024. As the saying goes the only constant in life is change, energy markets will garner endless opportunities and challenges for organisations, consumers and investors. No matter what the significance of the energy markets in your life, 2024 is set to have something for everyone.