Oil Market Fundamentals Outweighing Middle East War Fears

Oil market fundamentals remain remarkably stable despite the uncertainty and potential for volatility added by the onset of the Israel-Hamas war, according to the latest oil markets outlook from S&P Global Commodity Insights. Growth in non-OPEC+ supply, decelerating demand growth following China’s 2023 reopening and sizeable OPEC spare capacity point to a well-supplied market in coming months.

“The onset of the Israel-Hamas war does fuel volatility and bring additional risks, but it has not affected underlying oil market fundamentals. Oil prices have remained below where they were in late September—a week before the Hamas attack. Strong oil market fundamentals are prevailing over any fears at the moment.” – Jim Burkhard, Vice president and Head of Research for Oil Markets, Energy and Mobility, S&P Global Commodity Insights

Non-OPEC+ supply growth alone will be sufficient to meet world oil (total liquids) demand growth in 2023, 2024 and 2025, the analysis says.

While total demand is expected to reach new highs each of those years, the pace of demand growth will decelerate following this year’s 2 million b/d increase as the impact of mainland China’s reopening fades.

Liquids supply growth outside of OPEC+ is expected to grow 2.3 million b/d in 2024, well above demand growth of 1.6 million b/d. In 2025, non-OPEC+ supply growth of 1.6 million b/d is expected to outstrip demand growth of just below 1 million b/d for that year.

At the same time, the large volume of global spare crude oil production capacity (around 4.6 million b/d) is a potential buffer against supply disruptions or shortfalls.

Supply restraint by OPEC+ will remain key to maintaining oil prices above $80 per barrel in 2024 and above $70 per barrel in 2025, the analysis says. OPEC+ crude production in 2024 (excluding Iran, Venezuela and Libya) is expected to be 500,000 b/d lower than it was in 2023.

“Ongoing OPEC+ supply restraint will remain key to maintaining oil prices going forward. It is the reason why OPEC+, and particularly Saudi Arabia and Russia, are expected to produce less oil in 2024 than in 2023—and that trend could continue into 2025.” – Jim Burkhard, Vice president and Head of Research for Oil Markets, Energy and Mobility, S&P Global Commodity Insights

While market fundamentals do not point to an impending supply crisis, the risks of supply disruption are still higher than they were prior to the Hamas attack. How Iran and the United States respond will continue to be key, the analysis says.

“The Israel-Hamas war certainly altered political trends in the Middle East, but it’s ability to impact oil market fundamentals will be limited so long as the war is contained.” – Jim Burkhard, Vice president and Head of Research for Oil Markets, Energy and Mobility, S&P Global Commodity Insights