Oil, gasoline prices set to rise in 2024 as OPEC+ production cuts take their toll: EIA

Saudi Arabia's voluntary production cuts and other OPEC+ members' lowered output targets are succeeding in tightening global oil markets, prompting the US Energy Information Administration on Oct. 11 to significantly boost its expectations for oil prices next year.

In its October Short-Term Energy Outlook, the agency increased its 2024 forecast for Brent crude by $6.69 to $94.91/b and forecast WTI crude in 2024 to average $90.91/b, up $7.69 from last month's estimate for the year.

The higher oil prices are a reflection of the EIA's estimates that oil production by OPEC+ members will fall by 340,000 b/d in 2024 to 37.84 million b/d, following a 1.39 million b/d decline in 2023 that partly offset an expected 2.7 million b/d of production growth achieved by non-OPEC producers.

At the same time, the agency forecast global oil demand in 2023 at 100.92 million b/d, and growing to 102.24 million b/d in 2024, lowering its outlook by 50,000 b/d for 2023 and 90,000 b/d for 2024.

With global oil supply growth limited by OPEC+'s actions, the EIA expects global oil demand to outpace world production for the latter half of 2023 and much of 2024, putting upward pressure on oil prices.

The agency more narrowly adjusted its expectations for oil prices in 2023, lowering its Brent outlook by 37 cents to $84.09 and nudging down by 6 cents its WTI forecast to $79.59/b. But it noted that Brent crude prices jumped nearly $20 in the three months from June to September 2023, averaging $94/b.

The EIA sees global oil inventory draws continuing to fall at a pace of around 200,000 b/d during the first quarter of 2024 before balancing out for the remainder of that year "as global oil consumption growth generally slows while production growth accelerates."

That balancing will introduce "some modest downward price pressures" in the second half of 2024, the EIA said.

It pushed up its 2023 outlook for US oil production by 140,000 b/d to 12.92 million b/d and expects output growth to continue into 2024 to put US crude production at 13.12 million b/d, a 40,000 b/d dip from last month's estimate.

The agency pointed to a number of factors that could impact its forecast, including uncertainty over the potential for supply disruptions tied to the war between Israel and Hamas; higher-than-expected production from OPEC+; the rate at which US oil producers add drilling rigs and improve well-level efficiency; and changes to the global economic outlook.

Biofuel, jet fuel demand make gains

With oil prices on the rise, the EIA reversed its forecast for declining gasoline and diesel prices.

It now sees retail gasoline prices rising from an average of $3.62/gal this year to an average of $3.69/gal in 2024, a 17-cent increase from last month's estimate.

The agency put retail diesel prices at $4.29/gal this year, down 2 cents from the prior estimate, and expects the fuel to remain at $4.29/gal in 2024, a 22-cent increase from September's estimate.

With higher prices, US gasoline demand is expected to fall by 2% in 2024 while distillate fuel demand remains fairly flat, the EIA said.

But total petroleum and other liquid fuels consumption in the US is seen rising to 20.2 million b/d in 2024, putting fuel demand just 2% below pre-pandemic levels in 2019 and 3% below record consumption seen in 2005, the EIA said.

However, the share of refinery-produced petroleum fuels is expected to fall in 2024 as biofuels account for a greater share of the transportation fuel mix.

"We expect the consumption of renewable diesel to increase by more than 30% (60,000 b/d) in 2024, most of which will directly replace petroleum-based diesel, particularly in California," the agency said. "We forecast the share of biofuels in US liquid fuels consumption will average 6% in 2024, up from 1% in 2005."

The EIA also noted expectations for jet fuel demand to jump 6% in 2024 to more than 1.7 million b/d, which would match pre-pandemic consumption in 2019.

A shift to larger aircraft with more seats allowed US airlines to lower their jet fuel consumption for the same number of passengers, but increasing travel demand will contribute to rising jet fuel consumption in 2024, the EIA said.