Global oil markets
Global oil prices and inventories
The Brent crude oil spot price averaged $83 per barrel (b) in February, an increase of $3/b from January. Prices rose in February in part due to continuing uncertainty and increased risk around the attacks targeting commercial ships transiting the Red Sea shipping channel, as well as an anticipated extension to voluntary OPEC+ production cuts, which were officially announced on March 4. The OPEC+ voluntary production cuts are an extension of the existing production cuts that were announced on November 30, 2023 and are now extended through the second quarter of 2024 (2Q24). The announcement also included an additional voluntary production cut from Russia.
We expect that the extension of the OPEC+ production cuts will tighten global oil supplies in the near-term. The current OPEC+ agreement has two types of production cuts. The first cuts are officially stated production targets, and the second cuts are additional voluntary cuts pledged by some OPEC+ participants. Although our previous forecast had assumed that some of the OPEC+ members would maintain some voluntary cuts through 2Q24 in an effort to balance markets, this new announcement pledges the continuation of cuts for all of the members through the first half of 2024. Because some OPEC+ members are extending these voluntary production cuts and because Russia added new voluntary production cuts, we now expect oil markets to be much tighter in 2Q24 than we previously expected. We forecast global oil inventories will fall by 0.9 million barrels per day (b/d) in 2Q24; last month, we had expected inventories to remain relatively unchanged in 2Q24.
We expect that the tighter oil market balance during 2024 will keep the Brent price above current levels, averaging $88/b in 2Q24, $4/b higher than in last month’s STEO. We expect it will remain relatively flat for the rest of the year before increasing inventories (when OPEC+ supply cuts are set to expire) start putting slight downward pressure on the price in 2025. We forecast that the Brent crude oil price will decrease from an average of $88/b in January 2025 to an average of $82/b in December 2025, averaging $87/b in 2024 and $85/b in 2025.
Our forecast of global oil balances and their impact on our crude oil price forecast remain significantly uncertain. Although no oil production has been lost because of the attacks on commercial shipping traveling through the Red Sea, production could still be disrupted or some oil production in the Middle East could be shut in, which would likely cause oil prices to increase. It also remains to be seen how strictly the latest round of voluntary OPEC+ production cuts are adhered to, which has the potential to add additional oil supplies back on the market and lessen the expected tightness in near-term oil balances and the corresponding upward pressure on oil prices. In addition, we forecast global oil demand to grow by 1.4 million b/d in both 2024 and 2025. Higher or lower demand growth would affect global inventory levels and oil prices.
Global oil production
Following the incorporation of the new OPEC+ voluntary production cuts, we now expect that global liquid fuels production will increase by 0.4 million b/d in 2024, down from growth of 0.6 million b/d in last month’s STEO and down from an increase of 1.8 million b/d in 2023. Although OPEC+ production cuts limit overall growth in 2024, production outside of OPEC+ grows by 1.5 million b/d, driven primarily by four countries in the Americas—the United States, Guyana, Brazil, and Canada. This growth counteracts the decline in crude oil product subject to the OPEC+ agreement, which falls by 1.1 million b/d in 2024. Global liquids fuel production increases by 2.0 million b/d in 2025 in our forecast, driven by an increase in OPEC+ crude oil production of 0.9 million b/d as existing OPEC+ production targets expire at the end of 2024, while production that is not subject to the OPEC+ agreement increases by an additional 1.1 million b/d.