Fitch Ratings has increased its 2024 oil price assumptions, reflecting OPEC+’s continuing tight control over supply. We have also raised our TTF assumptions for 2024 and 2026 as prices in the European gas market are likely to remain high in the medium term. All other price assumptions have remained unchanged.
The increased Brent and WTI oil benchmark assumptions for 2024 are supported by OPEC+’s continued attempts to support oil prices, including the recent decision by several members to join Saudi Arabia and Russia in implementing additional cuts in 1Q24. OPEC+’s official quotas are also being extended into 2024. The market is likely to be in deficit of about 1.2 million barrels per day (MMbpd) in 2H23, according to the IEA, and OPEC+’s additional curtailments suggest that the deficit could persist in 1H24, provided that compliance with production cuts remains strong.
Russian export volumes remain fairly resilient despite sanctions. US shale production growth will moderate to 0.4MMbpd in 2024 from 1.5MMbpd in 2023, according to the EIA, as companies prioritise dividends and deleveraging over expansionary investments.
The IEA estimates demand to have increased by 2.4MMbpd in 2023, of which 75% is attributable to China’s post-pandemic recovery. However, demand growth will moderate to 0.9MMbpd in 2024, according to the IEA, mainly due to a slowdown in China and India. We expect crude prices to converge with our mid-cycle assumptions over time as OPEC+’s policies become less efficient, a geopolitical premium subsides and demand growth continues to decelerate.
The increased 2024 and 2026 assumptions for European TTF reflect our view that gas prices are likely to remain relatively high in the medium term as large increases in global LNG export capacity will come online only by 2026 from new projects in Qatar and the US. European LNG import infrastructure expansion is ongoing with 36.5 billion cubic meters (bcm) regasification capacity added since the start of Russia’s war in Ukraine and a further 106bcm planned by 2030. This should bring total LNG regasification capacity in Europe to 406bcm.
The European gas price has been volatile in 2023 due to seasonal fluctuations and shocks, such as the Hamas attack on Israel and impending workers’ strikes at Australian LNG plants. We expect prices to remain sensitive to external events in 2024.
Gas demand destruction in Europe has been sustained in 2023, with 8M23 demand down by 20% compared to levels prior to Russia’s invasion of Ukraine. We view the likelihood of demand increases as low. It would require higher industrial demand, changes to strategies to move away from natural gas consumption, or growth in petrochemical output, which remains depressed and is likely to stay below historical levels through 1H24 at least.
We have kept all Henry Hub gas price assumptions unchanged. US gas production continues to outstrip consumption increases, although the gap has decreased, in line with our previous expectations. Production continues to grow from a combination of associated gas from oil-focused drilling and natural gas-focused drilling last year. The natural gas rig count has declined to 118 this year from about 160 a year ago. This decline will lead to slowing production growth but with a lag. Henry Hub prices are extremely volatile and weather-dependent, and will remain so, particularly in the short term.
Source: Fitch Ratings