MNI INTERVIEW: Oil Oversupplied Amid Sagging Demand-Dallas Fed

Oil prices are likely to move down over the year as the market increasingly looks oversupplied in the face of stuttering demand growth and high U.S. output, Dallas Fed senior business economist Garrett Golding told MNI.

"As it stands right now it's looking still like an oversupplied market this year," Golding said in an interview, largely discounting the medium-term impacts from escalating Middle East tensions and Red Sea attacks so far. "The risks are more or less bi-directional on a fundamental basis: There are risks of supply outages and there are risks from demand because of a slowdown in China and elsewhere."

Oil prices have started the year on a weak footing as uncertainty in the market about demand has offset the impact of a new round of supply cuts by OPEC and its allies, known as OPEC+. Brent crude Thursday was trading around USD78 a barrel, slightly up since the start of the year.

"We are seeing supply outstrip demand this year," Golding said.

U.S. crude production is expected to continue to climb to record levels in 2024, but year-over-year growth is seen slowing, Golding said. The U.S. Energy Information Administration expects output to hit a record 13.21 million barrels per day this year, and for Brent oil prices to average USD82 per barrel in 2024, about the same as last year, before falling to USD79 a barrel in 2025.

"At current levels, if we were to assume that's more or less where we remain, we still get somewhat strong [production] growth out of the U.S.," said Golding, who briefs Dallas Fed President Lorie Logan on oil and gas markets. "Between the U.S. and other non-OPEC sources, that is more than enough to accommodate where we would expect global demand growth to head over the next year."

OPEC CUTS?

"We still have growth coming out of other non-OPEC sources and there's really no slowdown to them as well. This is happening at a time of global demand growth that is slowing as well," he said, suggesting likelihood of declining demand out of Europe this year. "Risks are tilted lower on global demand primarily because of what we're seeing out of China so far."

Data out Wednesday showed China's economy grew less than expected in the fourth quarter last year, weighing on oil prices. "There's just not a whole lot of sources of demand growth if you start to reduce China as part of that equation, said Golding, who anticipates no reduction in US demand under any non-recessionary scenario.

OPEC might therefore need to cut production further to keep oil prices at current levels, he said.

"It's a difficult situation for the Saudis and OPEC this year unless we see demand start to pick up relatively soon. Are these prices enough for Saudi Arabia and OPEC? They appear to be somewhat defensive in the USD80 Brent range wanting to defend prices at that level, but you have to wonder if that's realistic this year or not," Golding said.

"Additional cuts could get us there, but it also comes at the expense of -- there is an intersection there on the amount of exports versus the price. Cutting may not actually get them to the budgetary needs that they require this year."