Despite recent upticks, oil prices are unlikely to soar significantly higher, constrained by robust US production and global economic headwinds, according to energy expert John Kilduff from Again Capital. While tensions in the Red Sea have nudged prices upward, with West Texas Intermediate (WTI) crude trading at $75.94 a barrel and Brent crude reaching $81, these levels remain well below the September highs of $94 a barrel for WTI.
Kilduff’s assessment underscores the limited influence of OPEC+ in the current market landscape. The organization’s efforts to elevate prices through production cuts are being effectively neutralized by the US’s record-breaking oil output. This surge in American production has injected a surplus supply into the market, directly challenging OPEC’s strategy.
Looking ahead, Kilduff anticipates that the global economic slowdown could further dampen oil demand. Central banks worldwide are slashing interest rates, not just in response to moderated inflation but also due to a softening economic outlook. This trend, Kilduff argues, is likely to directly impact energy demand in the coming year.
The prospect of rate cuts by the US Federal Reserve, while initially seeming positive, might exacerbate the situation by reducing oil demand. As economies cool, the need for oil and energy correspondingly diminishes.
Kilduff also downplays the impact of Middle Eastern turmoil on oil prices. He suggests that recent incidents, such as attacks by Houthi rebels on crucial shipping channels, are unlikely to cause significant, long-term disruptions. Drawing parallels with past events like the 2019 Houthi missile attacks and the 2020 US drone strike on Iranian major general Qasem Soleimani, Kilduff notes that such events have historically had limited and short-lived impacts on oil markets.
In summary, while there may be temporary spikes due to geopolitical events, the overarching trends in US oil production and the global economic climate suggest a more subdued outlook for oil prices. OPEC+’s ability to control pricing appears increasingly constrained in this new dynamic, highlighting the evolving complexities of the global oil market.