The oil market has always been synonymous with volatility, and the past year has been no exception. U.S. crude oil prices have experienced dramatic fluctuations, ranging from $67 to $94 per barrel. In 2024, these prices have seen a notable increase, climbing by 10% to reach $79 per barrel. This surge has been primarily driven by production cuts from the OPEC-plus alliance, which includes Russia, and stronger-than-expected global economic growth. The nature of oil prices often involves sharp volatility, a reality that has significant implications for various sectors and consumers alike.
For average consumers, crude oil prices are crucial as they directly determine the prices of gasoline and other fuels. On May 29, 2024, the average national price for regular gasoline in the United States was $3.59 per gallon. This price is virtually unchanged from $3.58 a year earlier, according to data from AAA. The U.S. Energy Information Administration (EIA) has forecasted that gas prices will average around $3.70 per gallon from April through September, maintaining a similar level to the same period in the previous year. However, the EIA also pointed out that refinery operations could introduce uncertainty into gasoline markets during the summer, which may affect prices.
Oil-price forecasts suggest that prices may maintain their current levels through the end of the year. An April survey conducted by Reuters, which included 43 economists and analysts, projected that U.S. crude oil would average $80.46 per barrel in 2024, up from a forecast of $78.09 in March. On Wednesday, U.S. crude was trading at $79 per barrel. According to Suvro Sarkar, energy-sector team leader at DBS Bank, oil-market fundamentals have been tighter than expected this year. Demand trends have been more robust than anticipated, which should continue to support oil prices through inventory drawdowns, especially given the extended supply cuts by OPEC+.
The production cuts by OPEC+ are expected to continue, with a Bloomberg survey revealing that 90% of traders and analysts believe OPEC will sustain these reductions when they meet on June 1. Despite this, there are expectations that supply could increase from other sources. The recent rise in crude prices is likely to encourage non-OPEC+ producers to ramp up output. According to a report by the credit-rating agency Morningstar DBRS, crude supplies are expected to rise slowly for the rest of the year, with U.S. crude prices averaging $75 per barrel in 2024.
On the demand side, Goldman Sachs analysts project strong and sustained demand for oil. They forecast that oil demand will grow until 2034, revising their outlook for 2030 demand upwards by 2.5 million barrels per day to 108.5 million barrels per day, and further to 110 million barrels per day by 2034. This robust demand is attributed to continued economic growth and a slower-than-expected shift to electric vehicles (EVs). While gasoline demand is predicted to peak by 2028, delays in EV adoption could extend this peak until 2040. Furthermore, Goldman Sachs analysts expect jet-fuel demand to increase until 2040, driven by rising incomes and increased air travel, which could lead to higher airfare prices. In April, airfare prices climbed 4.1% from March but were down 5.8% compared to a year earlier.
Goldman Sachs is also optimistic about the refinery sector, which plays a critical role in converting crude oil into products like gasoline and jet fuel. The analysts foresee global refining utilization exceeding historical averages from 2024 to 2027. They expect refinery shutdowns and possible delays in new capacity to bolster refiners’ profit margins. In light of these trends, Goldman Sachs recommends investing in refiner stocks such as HF Sinclair, Marathon Petroleum, and Phillips 66, seeing these companies as well-positioned to benefit from favorable market conditions.
The ongoing volatility in oil prices highlights broader economic implications. For consumers, rising oil prices mean higher costs for gasoline and transportation, affecting household budgets and travel expenses. On the other hand, investors might find opportunities in the refinery sector, where favorable supply-demand dynamics and strategic investments could yield significant returns. The delicate balance between supply constraints, demand growth, and market adjustments continues to shape the landscape of the oil industry, influencing economic activities and investment strategies globally.
