The overall trend of the international crude oil market in 2023 can be described as ups and downs, with no surprises or risks. Stimulated by the repeated announcements of production cuts by the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia, oil prices first fell and then rose in the first half of 2023, and London Brent crude oil futures once approached a high of $90 per barrel. But by the end of the year, the situation had reversed. The New York Stock Exchange saw severe selling pressure on crude oil futures, resulting in a very low oil price. The factors affecting international oil prices in 2024 are complex and complex, and it can be said that the oil market is more difficult to predict than ever before.

Some significant uncertainties will still affect the changes in world oil prices this year. The conflict between Palestine and Israel may escalate, and there is a risk of it spreading to important oil producing areas in the Middle East; The peaceful settlement of the Russia-Ukraine conflict is far away, and the issue of world energy security has become increasingly urgent; Sudden events such as the tense situation in the Red Sea also occasionally strike the sensitive nerves of the oil market.

Throughout the century long development history of the world oil market, it is global and strategic factors that truly determine the long-term market trend. Therefore, observing the trend of oil prices this year and even in the coming years, it may be helpful to grasp the major contradictions and prominent issues with global impact for research and analysis, which may help to understand the laws of market changes, understand the motives and internal logic of price fluctuations.

Firstly, the biggest highlight of the international crude oil market in 2024 will be the resurgence of US shale oil. After the United States becomes the largest oil producer and natural gas exporter, it will greatly shake OPEC's market dominance and even trigger another price war for market share.

According to the latest data from the US Energy Information Agency (EIA), US crude oil production reached 13.2 million barrels in September 2023, and as of December, US oil production has grown to 1 million barrels per day. It is expected that the US oil exports will remain at a high level by the end of 2024, with an average of 5 million barrels per day. Surprisingly high shale oil production in the United States. The reason is that with the improvement of drilling technology, oil companies have achieved higher production without increasing expenses and the number of drilling rigs. According to data from Baker Hughes BHI, the number of oil and gas drilling platforms in the United States has decreased by approximately 20% in the past year.

The rapid increase in shale oil production in the United States has brought two significant structural impacts to the international oil market. One is to reverse the speculative trend in the oil market. According to data from Reuters in early December 2023, Wall Street traders are selling a large amount of crude oil futures, and their oil positions have sharply decreased from 680 million barrels on September 19 to 295 million barrels, a relatively low position in the past decade. The second is to force OPEC, especially Saudi Arabia, to reconsider its strategy, as the path of effectively controlling prices through production cuts may not be feasible. Between 2014 and 2016, Saudi Arabia launched a desperate price war to nip the booming US shale oil in the bud. Will history repeat itself?

Secondly, facing the aggressive competitive situation of shale oil in the United States, OPEC is planning how to counterattack. It is necessary to pay attention to what new actions OPEC, especially Saudi Arabia, will take in 2024.

The OPEC+, composed of OPEC member states and non OPEC oil producing countries, has agreed to reduce oil production by 1 million barrels per day starting from January 2024. Ensuring stable and high oil prices is a common goal of OPEC member states, which is to maximize the value of crude oil reserves in each oil producing country. Some people say that OPEC has used production cuts as a political weapon. The reason is simple: oil export revenue is the primary and almost only important source of finance for most oil producing countries.

The question is, how can OPEC maintain or increase its share in global oil production and exports while controlling supply to affect prices, given the significant increase in US crude oil production and exports? A market share that does not occupy an absolute advantage may weaken its market influence and pricing power. Nevertheless, OPEC and OPEC+produced nearly half of the world's crude oil in 2022 and controlled over 70% of the world's proven reserves. The shale oil boom in the United States has indeed weakened OPEC's market dominance to a certain extent.

Experts predict that the solution for OPEC and Saudi Arabia may still be to offset soaring non OPEC+production by injecting crude oil into the market, thereby lowering oil prices below the profit threshold for shale oil in the United States. If OPEC and Russia decide to cancel production cuts after March 2024 and bring most of their idle capacity online, world oil prices may plummet by 30% to 50%. Of course, this situation is quite extreme and the likelihood of occurrence is not high. A more realistic option is to work together with OPEC+member countries to strictly control supply in the coming years, strive to balance the market, and maintain prices between $70 and $80 per barrel.

From the current situation, there are still many internal differences that OPEC needs to resolve, and no agreement has been reached on an overall production reduction at least in the first quarter of 2024. Saudi Arabia and Russia advocate for continued production cuts, so OPEC+may intervene again at the beginning of the year to introduce measures to expand or deepen production cuts to prevent a decline in oil prices.

In addition, OPEC has successfully invited oil producing countries such as Brazil to join the alliance. Its strategy is to consolidate its market influence and pricing power by continuously expanding the proportion of global oil production and market share.

Once again, what do you think of the oil fundamentals this year. The research reports of major investment banks and oil institutions around the world provide sufficient analysis on the trend of oil prices in 2024. Industry insiders attach great importance to changes in global oil supply and demand fundamentals, as well as predictions of global economic growth prospects, believing that fundamentals will directly affect oil price fluctuations.

The International Energy Agency (IEA) predicted in its December 2023 monthly report that record breaking US oil production is a "huge problem" for OPEC+. The production of OPEC+will decrease by 400000 barrels per day in 2023, and its market share will drop to 51%, the lowest level since the establishment of the alliance in 2016. The outlook for the global oil market in 2024 is generally bearish, but overall demand has increased, especially from Asia, which may lead to an increase in oil prices and reverse the sluggish state at the end of 2023.

According to research by ING, the Dutch international group, OPEC, including Iran, has approximately 5.5 million barrels per day of idle production capacity. Therefore, how OPEC+controls crude oil supply and whether to continue reducing production or releasing water will be the key to the trend of oil prices in 2024. It is expected that the supply of crude oil in the market will still be in short supply. The Brent crude oil futures price in the first half of the year will be $80 per barrel, while the average price in the second half of the year will reach $91 per barrel.

Gaoze has recently lowered its oil price forecast for 2024 to between $70 and $90 per barrel. The main reason is that US crude oil production has unexpectedly increased significantly, and it is expected that OPEC+will continue to further reduce production to stabilize prices. Citigroup predicts that the world average oil price in 2024 will be $75 per barrel, which is closest to the actual situation of recent oil prices.

The world oil price is closely related to geopolitics. The biggest highlight of the oil price trend in 2024 is still the game between the United States and Saudi Arabia. There are reports that the US government has approved three new oil and gas leasing auctions in the Gulf of Mexico. This includes the $8 billion Willow oil and gas drilling project invested by American oil giant ConocoPhillips in Alaska. The position of the United States as the world's largest oil and gas producer will continue to strengthen. Further observation is needed on how "OPEC+" can engage in different tactics.