Brent oil price at $74 is $8 too cheap vs our model-derived fair value of $82 for December. Given our optimistic view on demand next year, we see Brent oil trading in the low $80s by March and high $80s by May. We find current oil prices in the lower range of the trading band and see the recent sell-off as a potential buying opportunity—even with thinning liquidity ahead of the holiday period—given our divergence with consensus on fundamental factors affecting oil market dynamics in 2024. Given our outlook on demand, we argue that there is no need for further OPEC cuts were the alliance to accept lower oil prices in the mid-$70s to mid-$80s range. Instead, we believe, the alliance should unwind some of the voluntary reductions in order to gain operational flexibility when demand growth takes a step down in 2025 (and potentially 2026), when most of the post-COVID demand normalization is behind us and decarbonization policies begin to cut into demand for some products.

Speaker:

Natasha Kaneva, Head of Global Commodities Research 

This podcast was recorded on 15 December 2023.

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