Predicting what’s in store in a market as volatile as the energy sector is far from a precise science.
But Matt Smith, energy analyst for Kpler, keeps his eye on certain factors and he’s been keeping an eye on a lot of things for 2024. Smith joined Texas Standard to discuss his predictions. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Well, last we spoke, gas prices were way down. What are some of the key themes in the industry that you’ll be watching for in 2024 as we look more broadly at the upcoming year?
Matt Smith: Sure. So several things that are on our radar.
The first is really geopolitics. The last couple of years we’ve had a really crazy time. You know, the year before last we had Ukraine, Russia, and that has continued now, the conflict there, for nearly two years. And then we had last autumn everything with Gaza.
And so the concern is that we’re going to continue to have these geopolitical hotspots going forward here which cause more volatility in the market, but just generally more volatility on a general basis. So that’s a concern as we head into 2024 here.
The second, and I don’t want to be all doom and gloom on you, but we could be seeing a recession in the U.S. We’ve been particularly resilient over the last year or so, but we’re seeing Europe is about to fall into recession and the U.S., after all these interest rate hikes over the last year in trying to get inflation down, we’re likely to see growth slowing. And so that’s a worry in how that impacts oil demand.
And then the third piece really is just supply and demand for oil. There’s always these two sides of the scale which are trying to balance each other, but inevitably it’s impossible to do. So that’s going to be a factor going forward here, whether supply growth continues, particularly whether it’s out of the U.S. and Brazil and Guyana and Canada, as we have been seeing, and whether we see OPEC – the Middle East producers and West Africa –continuing to keep barrels off the market to support prices. And then as I mentioned, on the demand side, it’s just that there’s recessionary concerns.
So those are just some of the things that are on our radar heading into this year.
Well, let’s talk about the supply side for just a moment, because as you mentioned, there was a lot of concern about what the war in Ukraine would mean. A lot of those concerns were frankly, looking in the rearview mirror, they seem to be overblown because there was the production sufficient to keep gasoline prices low in the United States despite all this geopolitical uncertainty.
What do you think accounts for that as you look back over the year that was? And what can we extract from that as we try to think about 2024?
Sure. Well, two things, really.
One was that you had really strong growth out of the U.S. last year. That’s not something we’re going to see replicated this year, but those additional barrels coming to market and the U.S. getting to a record production level of over 13 million barrels a day, that has helped things along with growth elsewhere.
But really the reason that we didn’t see prices really going crazy over the last couple of years is because Russia is still getting its supply to the market. And so, you know, the U.S. and EU, they want to punish Russia by reducing their revenues, but they don’t want to halt all their flows to the market because that would cause a price spike. And so there’s a delicate balance there.
Yeah, well, now we’ve got a lot of things on the calendar for 2024, not the least of which is this U.S. presidential election. You think that’s going to have any impact on prices?
Absolutely. So that’s going to be really interesting in Q3 going into Q4 of this year, simply because the U.S. is so focused on the price at the pump there.
You know, we’ve been lucky enough to have low prices over the second half of last year, but you have an inverse relationship, right? In that as prices at the pump go high in particular extremes, you see a president’s popularity going in the opposite direction. So you will see the U.S. administration trying to keep oil prices and prices at the pump down as we head into this election because it’s so important.
But on the flip side of that, you have other countries and kingdoms such as Saudi Arabia and OPEC that know this, that will be looking to keep production cuts in place to support oil prices. So it’s going to get really interesting, I think.
And then you’ve also got the situation in Gaza with Israel and you’ve got proxy fighters backed by Iran doing their best to try to control flows in and out of the region. And then, we haven’t touched on this, but then you’ve got this spat between Guyana and Venezuela. Venezuela claiming historically that they have some kind of claim to oil discovery off the coast of Guyana. And this goes back to border issues that are more than a century old, when you get right down to it.
Do you think any of that’s going to have an impact on oil prices in the short term?
I don’t think so. I think the situation with Venezuela, there is more posturing than anything else.
You know, Maduro is trying to garner favor as he heads into an election this year for Venezuela. So I don’t think there’s any concern. And in fact, that’s probably bearish for oil prices in the years ahead here simply because Guyana is going to be adding so much production to the market. It really is a success story. And that’s kind of why Venezuela is trying to do a kind of land grab there, simply for that reason.
But fortunately, it seems that that’s just a war of words and there won’t be any escalation there, hopefully.
You know, let’s talk about renewables. Texas is number one in solar and wind power, we should point out, and there’s been a real race for solar, of course, coming out of the COP summit in December. Are you seeing 2024 as perhaps being a tipping point year when it comes to renewables or not so much?
More just a continuation of the trend that we’ve seen in place, right?
So particularly in the U.S. here, we have such a focus on 2030 and reducing emissions by that point. And so really 2024 is just going be part of that trend, but Texas is well ahead of many, many other states already on that side of things. So nothing too pivotal on that side of things.
The more interesting development going forward here is going to be in terms of electric vehicles and the penetration that we see of those making their way into the general pool of vehicles as we head towards the end of this decade. That’s more of a thing to watch.