MNI INTERVIEW: Oil Market Outlook Relatively Balanced

The oil market outlook is largely balanced at the moment with both upside and downside risks to supply from OPEC+ cuts and geopolitical disruptions, Dallas Fed senior business economist Kunal Patel told MNI.

"If you are looking at supply and demand today, you'd say that the market is relatively balanced where supply meets demand. But, when you are looking forward there is no consensus on that," he said in an interview.

"Consumption growth is continuing and looks healthy, led by non-OECD countries, mainly China and India," Patel said. "On the supply side, it seems reasonable to expect an increase in U.S. production this year. However, it's going to be slower than the growth we saw last year. There's also specific spots like Guyana that are expected to increase, and everybody is looking at OPEC+ that will have implications for the market."

Most recently, oil prices have whipsawed on Middle East tensions but are down on the week as there has been no impact on oil production and investors have largely unwound the geopolitical risk premium in oil prices. Some market analysts have nudged up their view of the floor under Brent crude to USD75 per barrel.

Patel suggested that eyes will be on OPEC+ as to the path of prices. "OPEC has been willing to react. I wouldn't put the tension in the Middle East as something that drives the floor" under prices.

FIRMS WAIT AND SEE

The Dallas Fed's most recent quarterly energy survey shows company executives on average expect a West Texas Intermediate oil price of USD80 per barrel at year-end 2024, with responses ranging from USD70 to USD120 per barrel. Longer-term average expectations were higher at USD83 per barrel two years from now and USD90 per barrel five years from now.

Patel, involved with the production of the Dallas Fed energy survey, warned not to take the longer-term responses as a signal. "We need to collect this specific question more into future quarters to better understand if there is a trend in those expectations, but currently I would say I'm not taking too much into account."

"Executives are generally positive, but they're just not as optimistic" as they had been earlier, Patel said, noting the survey's activity index has been near zero for multiple quarters. The Dallas Fed has conducted its energy survey since 2016 and the most recent iteration covered 147 firms.

"Activity has been pretty steady and firms are in a wait and see stance," he said.