Based on the fundamentals, industry analysts are predicting that oil prices will remain relatively flat through this year.
Despite the recent attacks on commercial shipping in the Red Sea by Houthi militia based in Yemen, analysts believe the supply and demand dynamic will remain largely balanced, thanks to spare OPEC+ capacity. Moreover, the 20% of the world’s oil flow that goes through the Strait of Hormuz looks unlikely to be substantially disrupted.
Writing in a note, Ewa Manthey and Warren Patterson, who are strategists at ING, said about this:
“For now, we believe the risk of significant disruption to oil flows from the Persian Gulf is low, but it is certainly worth keeping an eye on, given the potential impact it could have on oil supply and prices.”
Despite production cuts by the OPEC+ group, particularly for Saudi Arabia and Russia, the oil market has remained fairly balanced due to increased production outside OPEC+, such as the string of projects in Guyana operated by ExxonMobil, the maker of the Mobil DTE hydraulic oil. Brent crude averaged $101 a barrel in 2022, but this was reduced to $82 last year.
According to data for November last year from the World Bank and the International Energy Agency, OPEC+ producers’ collective spare capacity amounted to 5.1 million barrels per day, enough to meet around 5% of the world’s demand for oil. Analysts believe this will be enough to meet growing demand and compensate for any supply disruptions resulting from geopolitical tensions.