This year has been an eventful one for the oil market.
Oil prices are down about 17% from the average price that prevailed in 2022. Meanwhile, supply cuts from some of the world's largest producers and resilient demand from US consumers have kept a floor on prices many feared would fall even further after oil more than doubled from the start of 2021 to mid-2022.
"In 2024, we expect more of the same" wrote Natasha Kaneva, head of global commodities research at JPMorgan, in a recent global oil market note.
Kaneva and her team expect prices for Brent (BZ=F) crude oil, the international benchmark, to remain "largely flat" in 2024, with their forecasts calling for an average price of $83 a barrel next year and $81 this year. By 2025, the firm expects to see a 10% drop in Brent prices, falling to an average of $75 a barrel.
West Texas Intermediate (CL=F) and Brent crude oil were trading roughly 2% higher on Monday, hovering above $77 and $82 per barrel, respectively.
The team at JPMorgan expects oil demand to rise next year by 1.6 million barrels per day, with next year's increased oil supply that meets this demand expected to come from producers outside of the Organization of the Petroleum Exporting Countries and their allies — known as OPEC+ — like the US.
"Despite sustained economic headwinds, we see demand ... underpinned by robust EM, resilient US and weak but stable Europe," JPMorgan wrote. "Demand composition will likely flip, with two-thirds of demand gains set to come from the overall economic expansion, while continued normalization of jet fuel would contribute the rest."
"To keep the oil market balanced, [the] OPEC+ alliance would need to continue to constrain production," the firm wrote in its note, referring to the oil cartel's current output cuts and unilateral reductions from its largest producer, Saudi Arabia.
In April, OPEC+ surprised the markets by announcing it would reduce its output by more than 1 million barrels per day, with half of this reduction coming from Saudi Arabia. Russia also announced a 500,000 barrel-per-day cut.
"OPEC+ needs higher prices to meet their domestic budget spending considerations," Andy Lipow, president of Lipow Oil Associates, said immediately after the cuts were announced. "OPEC+ will continue to take preemptive action when prices fall."
In June, OPEC+ members announced the group would extend production reductions through next year. The supply squeeze caused futures to rally more than 25% in the third quarter, prompting a number of calls for $100-per-barrel crude.
Crude oil reached a 2023 high in late September, with Brent closing above $96 per barrel and WTI above $93.
But barring a brief, volatile period after the Israel-Hamas war broke out, prices have been declining, with oil prices logging four consecutive weekly losses amid concerns of rising inventories and slowing demand through last Friday.
"What this proves is that you can have problems in the Middle East and all sorts of geopolitical possibilities. But until you prove it to the market, they’re not going to pursue those higher crude prices," Tom Kloza, head of energy analysis at OPIS, told Yahoo Finance recently.
Still, markets remain sensitive to changes from OPEC+. On Friday, crude oil prices spiked 4% after OPEC+ sources told Reuters the group will consider whether to make more supply reductions when it meets on Nov. 26.
The long game for OPEC+
Away from the near-term shifts in supply and demand pushing around oil prices, JPMorgan's team also sees prolonged shifts in policies from OPEC+ changing the plans for US producers years down the road.
"Global oil demand growth will likely decelerate to 1 mbd [million barrels per day] as the last phase of the post-pandemic rebound dissipates and advancing energy efficiencies and an expanding electric vehicle fleet gain ground," JPMorgan wrote. "With demand growth set to slow, and non-OPEC supply surging, the market would shift into large surplus, dragging Brent oil price into $60s by year-end 2025."
The firm sees much of the price action dependent on whether Saudi Arabia and Russia continue to voluntarily limit their production in 2024 and 2025. Oil prices would fall if those cuts were to be eliminated and more supply was brought into the market. In response, "US oil operators would likely react," JPMorgan wrote.
"[A full] unwind of the 1.3 mbd voluntary cuts and the resulting drop in price, however, would likely trigger a slowdown in drilling and fracking activity in the second half of 2024," JPMorgan added.
In this outcome, the reduced oil output from US producers would boost the firm's forecasted Brent price for 2025 by $7 to an average of $65.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.