Oil and Gas Price Forecast: Top Trends That Will Affect Oil and Gas in 2024

Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, told the Investing News Network (INN) in a November interview that given the tightness in global oil inventories at the start of 2023, he was expecting the energy commodity to close out the year at US$100. However, the closest prices got to this level came after a rally in the third quarter that brought a jump of more than 30 percent by the end of September.

Nuttall attributed this Q3 price spike to a “sharp contraction” in global oil inventories, which he said are at their lowest levels since at least 2017. “At the same time, you have (the Organization of the Petroleum Exporting Countries) that is very clearly in the driver's seat, where they are balancing the market by withdrawing further exports,” he added.

In September, Saudi Arabia extended its voluntary crude oil production cut of 1 million barrels per day (bpd) through to December. At the same time, Russia said it planned to extend its 300,000 bpd export reduction until the end of the year.

Despite that news, and even with conflict breaking out in the Middle East between Israel and Hamas, oil prices returned to a downward trend in the fourth quarter of 2023, dipping below the US$70 mark.

“Volatility is feeding negativity to a point to today where you look at net speculative length, which is our measurement for optimism towards oil, we’re now almost at its lowest level in history,” commented Nuttall.

"High storage levels in the EU allow for cautious optimism ahead of the 2023-24 heating season," notes the International Energy Agency in its report. "However, a range of risk factors could easily renew market tensions. Northwest Europe will have no access this winter to two sources that used to be the backbone of its gas supply: Russian piped gas and the Groningen field in the Netherlands."

Mild to wild winter conditions sent natural gas prices spiking again in mid-January 2024 as bitterly cold Arctic air led many in northern climates to crank their thermostats, while at the same time supply "sharply declined due to frozen wells caused by extreme cold," as per Trading Economics.

OPEC to play an outsized role in 2024

A much larger factor influencing the market this year will be OPEC’s commitments to continuing production cuts.

In November, OPEC members signed an agreement to lower crude oil production targets by an additional 2.2 million bpd through March 2024 in response to weaker crude oil prices. “These cuts are in addition to the existing voluntary cuts and lower production targets set at its June 2023 meeting,” according to EIA analysts.

“One of the stated goals of OPEC is to reduce market volatility, and that’s been tough in 2023,” Nuttall told INN back in November. He explained that OPEC’s production decisions are based on the fiscal needs of its member nations. Saudi Arabia, for example, has massive growth and modernization plans to provide for its younger population, which doesn’t align with an oil price of US$75. “As a revenue maximizer, we think OPEC is practicing value over volume. Cut volume to increase value to drive a higher oil price," he said during the conversation.

The EIA is forecasting that crude oil production out of OPEC and its partners (OPEC+) will average 36.4 million bpd in 2024, which is less than the 40.2 million bpd average over five year period preceding the COVID-19 pandemic. At the same, the agency expects to see a slowdown in non-OPEC+ production growth — after a 2.5 million bpd increase in 2023, it's expecting growth of only 1.1 million bpd in 2024. The decrease is seen stemming from slower growth in US oil output — production rose by 1.6 million bpd in 2023, but is set to increase by only 0.4 million bpd in 2024.

As for global oil consumption, EIA is projecting an increase of 1.4 million bpd in 2024, slightly lower than the 10 year pre-pandemic average. One of the factors decreasing demand for oil moving forward is anticipated to be the growing adoption of renewable energy technologies in the transportation sector. The agency notes, “We expect continued adoption of (electric vehicle) and hybrid vehicles will displace some motor gasoline consumption.”

Looking over to natural gas, the EIA is forecasting that the Henry Hub spot price will average between US$2.60 and US$2.70 in 2024, up by about 10 cents over the levels seen in 2023. “Record natural gas production and storage inventories that remain above the 2019-2023 average mean that natural gas prices in our forecast are less than half the relatively high annual average price in 2022,” states the agency.

Opportunities in oil and gas stocks

Against that backdrop, where should investors look for opportunities in the oil and gas market?

Many analysts are eyeing Canadian oil and gas stocks given the forthcoming startup of activities at the Trans Mountain pipeline expansion and the Coastal GasLink project in Western Canada.

“Oil and gas producers in Canada represent compelling value with new oil pipeline and LNG infrastructure coming online to support production volume growth in 2024 and 2025,” said Carbon Infrastructure Partners’ Golinowski.

For his part, Ninepoint Partners’ Nuttall favors Canadian mid-cap oil companies. “That’s where you’re finding the most profound value,” he said. "We remain convinced that there remains an unbelievable opportunity in these names, especially with sentiment now at almost historic lows. We go through these bouts ... unfortunately this sector is volatile. To compensate you for that volatility we still see very meaningful upside in these names. And we remain bullish."