In a recent note, Bank of America (BofA) analysts warned that US oil companies and refiners are poised to encounter yet another challenging year in 2024. The analysts anticipate that the price of Brent crude will average $80 per barrel throughout the year, setting the stage for a potentially turbulent period for the industry.
The oil market witnessed a tumultuous 2023, marked by geopolitical uncertainties and concerns about the production levels of major oil-producing nations globally. Crude futures experienced a loss of over 10% during this period, reflecting the volatile nature of the market.
“We expect oil to remain volatile, exacerbated by outsize paper market influence, informed by geopolitics and OPEC policy,” stated BofA in its note. The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, are presently cutting output by approximately 6 million barrels per day, constituting about 6% of the global oil supply.
BofA identified the major challenge for investors in 2024 as not underestimating Saudi Arabia’s commitment to oil. The analysts emphasized that Brent crude could linger within a notional $70-$90 band due to factors such as non-OPEC output and an uncertain demand outlook.
The brokerage firm highlighted that absolute valuations for the oil sector, on average, are currently less compelling than at any time since the onset of the Covid pandemic. This follows a robust recovery in the sector over the past three years.
Despite these challenges, BofA identified potential tailwinds for the industry arising from recent dealmaking activities in the largest US shale field, the Permian basin. The bank sees Occidental Petroleum, Exxon Mobil, and Chevron as top picks for investors in 2024.
The dynamics of the oil market are expected to be shaped by various factors, including geopolitical developments and the influence of OPEC policies. The ongoing output cuts by OPEC+ are contributing to a supply-demand imbalance, adding to the existing volatility in oil prices.
Investors are advised to exercise caution and not underestimate the significance of Saudi Arabia’s role in determining oil prices. BofA’s projection of Brent crude ranging between $70 and $90 underscores the complexities arising from factors such as non-OPEC production and an uncertain demand landscape.
While the absolute valuations for the oil sector may not be as attractive as in previous years, the bank sees potential opportunities stemming from recent strategic moves in the Permian basin. Occidental Petroleum, Exxon Mobil, and Chevron are singled out as companies with promising prospects for the year ahead.
In conclusion, as the U.S. oil industry prepares to navigate the challenges of 2024, the steadfast projection of Brent Crude at $80 by Bank of America serves as a pivotal benchmark, guiding market participants through the anticipated uncertainties and dynamics shaping the year ahead.
Source: Reuters
