On paper, oil should be at stellar levels. War in Ukraine that has forced Europeans to rethink their energy policy without Russian crude oil; incessant bombings in the Middle East, with crises in the Red Sea, ships fleeing the Suez Canal and Iran that risks getting involved in the conflict and production cuts of nearly 900,000 barrels a day by the OPEC cartel with the objective of sustaining contributions. Even the World Bank, always cautious in its analyses, a few weeks ago went so far as to predict the possibility of seeing the barrel close to $150, in the hypothesis of a large-scale geopolitical conflict.
And yet, the barrel has so far avoided bombs and wars. In the last quarter it has chained several consecutive downward sessions with a cut of almost 20% from the highs at the end of September. In the end, 2023 ended in annual losses (more than 6%), which represents its first negative year since the shock of the 2020 pandemic. Today prices are at $79 per barrel, when in 2022 on average They were at 95. Why isn’t oil going up?
The first reason is the simplest: demand and supply are balanced. From the production side, if OPEC turns off the tap, the United States turns it on. The Americans have once again consolidated their global leadership, which they achieved in 2018. Today they export like never before.
According to calculations by the US Department of Energy, oil made in the USA already represents 20% of global production, so its distance from Saudi Arabia and Russia has increased in recent years. In absolute terms, with 13.3 million barrels per day in December, the US had never pumped so much oil. “Whatever the usual doomsayers say, fracking continues to work very well. The US is producing at record levels and the sanctions against Russia have not translated into a significant reduction in oil,” highlights the professor of Stratigraphy and Historical Geology at the UB, Mariano Marzo. Proof is that in recent weeks two giants in the sector, Exxon and Chevron, have invested millionaire sums (60,000 and 50,000 million dollars respectively) to buy Hess and Pioneer Natural Resources, firms that operate in fracking, which can restore shine to this industry that has suffered many ups and downs.
OPEC itself is not experiencing its best moments. Indonesia (2016), Qatar (2019), Ecuador (2020) and Angola (2023) have left the club. Javier Blas, essayist and Bloomberg analyst, recalled that “the three most dangerous words in the oil market are: “(The) OPEC is dead.” According to his analysis, several of its members believe that Riyadh is unsuccessfully trying to keep prices too high, just when the world economy may face a slowdown in 2024.
In fact, global demand, according to the International Energy Agency (IEA), will continue to grow (1.1 million barrels per day), but less than half of what it did in 2023. It must be considered that the growth of China is no longer what we were used to, when it is also in a process of increasing adoption of electric vehicles.
2024 is an unknown. “There are many uncertainties, a lot of fear and a lot of caution in a market that is waiting to see them coming,” acknowledges Marzo. In a recent note to investors, Francisco Blanch, of Bank of America, raised more doubts. “We believe that the crude oil market may be being too optimistic about recent events in the Middle East. The dependence of Asian economies on the oil that flows through the Strait of Hormuz is enormous. Any escalation could trigger a jump to $130.”
World food prices fell by 13.7% in 2023, according to the FAO (United Nations) index. This is a sharp decline after the rebound in 2022, related to the outbreak of the war in Ukraine. The maintenance of cereal exports, even lower than in the past, by Kyiv, the abundance of Russian and Australian wheat supplies and the good Brazilian corn and soybean harvests have favored the fall in prices. But “the fact that the price of raw materials is falling does not necessarily imply a fall in the price of food products,” stressed economist Bruno Parmentier. The exception to the downward trend continues to be rice, which in 2023 rose 21%.