Carole Nakhle, Chief Executive Officer at Crystol Energy discusses projections for the United States oil market

This interview was initially authored and published by Margherita Cargasacchi, Conference Producer at Informa, in anticipation of the upcoming Foam Expo North America and Adhesives & Bonding Expo. Scheduled for June 25-27, the event will be held in Novi, Michigan, United States.

Should chemical producers, foam, and adhesive manufacturers be bullish or bearish on the oil market in 2024?

The bulls in oil markets have been proven wrong for most of the last two years. Remember the forecasts of $200 and even $300 per barrel prices following Russia’s invasion of Ukraine in 2022?? For this year, we are seeing downward revisions to oil price forecasts compared to only a few months ago but a wide range of expectations can be noted, varying between $75 to $95 per barrel.

What are your projections for the United States oil market in 2024?

The story of the oil industry in the US is simply fascinating and reflects what the private sector can do in a competitive market structure. Many have underestimated that important aspect and have repeatedly predicted the demise of the shale industry, for instance, only to be disappointed over and over again. Unless we see an adverse change in legislation and government policy with an immediate impact on the sector, which is unlikely, we expect the industry to remain in good shape. Although oil production growth may decelerate this year, the US oil industry will continue to flourish and impact markets not only in the US but also globally.

What could inflame the sector and what kind of disruptions do you expect this year?

Risk and price volatility have been a natural feature of the oil industry, right from its inception and the industry should be accustomed to handling them by now. Today, there is no shortage of political and also policy risks that can cause major supply disruptions but experience confirms the agility of the industry to respond to the challenge and the ability of the market to resolve those disruptions – probably much faster today than only a decade ago. Besides, demand is not booming; on the contrary, the macroeconomic environment remains challenging, and China, the growth engine for oil demand, is battling structural economic challenges that are unlikely to dissipate overnight. There is also a significant ‘safety cushion’ in the system – OPEC+ spare capacity is above 5 and 10-year averages. On balance, unless we see a major escalation of the tensions in the Middle East that would cause serious losses of supply, it is hard to see what can ‘inflame’ the sector this year.

How will the conflicts in Europe and the Middle East affect the oil market?

Since Russia invaded Ukraine in February 2022, the world has experienced mounting geopolitical tensions. These escalated in October last year when Hamas attacked Israel and the subsequent assaults carried out by the Houthis on ships crossing the Red Sea, Western powers’ retaliation on the Iranian-backed militia in Yemen, and Iran’s seizing an American oil tanker in the Gulf of Oman. Yet, oil prices barely took notice, ending 2023 at less than US $78 a barrel (/bl), and struggled to hit US $80/bl in January this year, despite several production cuts made by OPEC+ to prop them up. The IEA which predicted a major supply shock in 2022 following the war in Ukraine has changed its position 180 degrees and now expects a ‘comfortable market’ this year. Supply growth outside OPEC+ and particularly in the US, timid economic growth that is dampening oil demand growth, and historically large spare capacity have all led to the existing market trends. If it wasn’t for OPEC+ cuts, prices would have been at much lower levels.

How acute is the impact of Houthi rebels targeting vessels in the Red Sea?

The Red Sea is an important passage for global trade including oil and LNG, thus any disruptions via this route ought to impact global trade. However, current oil prices do not convey a concerning situation, primarily because no losses of supplies have actually occurred and there are alternatives to the Red Sea even if they require a longer journey. Should the tensions spread to key players in the region and beyond it, then the current situation will change, but those players have not expressed a strong appetite for a bigger conflict, neither within the region nor outside it. This year is a crucial elections year – in fact, the biggest elections year in history; a new major conflict at this critical time is not an attractive proposition for many.

This year, pivotal elections will take place globally. How do you anticipate these political events influencing the oil market?

This may be a blessing in disguise for consumers as it is helping to keep the lid on prices by avoiding the creation of major conflicts that can disrupt oil supplies. In countries like the US, energy prices play an important role in the popularity of a president. I don’t recall anyone winning a major election by promising high energy prices. And it is not just the US. Energy prices are a politically sensitive topic. Look at how governments in Europe reacted in 2022 when oil and gas prices increased. There were probably more changes in policies than there were changes in prices, including giving generous subsidies to ease the burden of high energy prices on households and industries and therefore tame public discontent. In the longer term, what a new government decides particularly in relation to the climate change agenda and measures such as taxes on the oil and gas industry will of course impact investment and future oil supplies.

And finally, United States elections: what is the significance of this event for the oil market?

The subsequent policies of the winning administration on the domestic industry but also the relations with other major producers, as the last two US presidential elections.

Related Analysis

Oil markets: Relative stability amid geopolitical strife“, Dr Carole Nakhle, Feb 2024

Related Comments

Is There a Geopolitical Risk Premium in the Oil Price Right Now?“, Dr Carole Nakhle, Feb 2024

Impact of geopolitics and elections on global oil markets” Dr Carole Nakhle, Jan 2024

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