Oil prices are likely to climb in 2024 after OPEC and its allies opted to extend crude oil production cuts of 2.2 million barrels per day (MMbpd) into Q2 2024 – ostensibly to support the stability and balance of oil markets.

This is of course doublespeak from the oil cartel for wanting to prevent crude from being stockpiled and putting pressure on prices.

Hardly surprising when one considers that the benchmark Brent crude price has remained below the US$80/bbl price point for the first two months of 2024.

Rystad Energy believes that the voluntary cuts will add US$5 to the oil price, taking its 2024 crude price forecast up to US$85/bbl.

It noted that with strong demand expected in the second half of 2024 due to Asia and the resilient US economy, the crude oil market will likely remain in deficit in 2H even if OPEC+ fully unwound cuts at the end of Q2.

The independent energy research and business consultancy noted that by extending the voluntary cuts, OPEC+ crude production is anticipated to average 34.6MMbpd in the second quarter of this year before increasing to around 36.3MMbpd in the second half of the year, assuming the cuts will not be extended into the third quarter.

It added that the move also appears to be focused on supporting prices rather than expanding the cartel’s market share, a move that will likely benefit the US shale oil sector that has seen production hit a record level of more than 13.3MMbpd.

OPEC+ is likely unconcerned about the expected drop in its market share from 34.3% in January to 33.9% by June as shale oil production typically has high costs, which translates to lower margins compared to conventional oil production.

Further support for prices could come from the US following a smaller-than-expected build of crude inventories and the US Federal Reserve chief still expecting interest rate cuts this year.

Rystad isn’t alone in raising its forecast with Goldman Sachs raising its own forecast up to US$87/bbl last week on faster-than-expected land inventory drawdowns and expectations that OPEC+ would extend the oil production cuts.

Offshore wind gaining momentum

The Australian Government seems to be placing its bets on offshore wind to help deliver its net zero goals, declaring an area in the Southern Ocean, off western Victoria, as suitable for offshore wind development.

This is expected to be capable of generating over 2.9GW of power, enough for over 2 million homes and generate hundreds of jobs during the construction phase.

It follows consultation with local communities, state and local government representatives, First Nations people, existing industries including shipping, defence, fishing, and other marine users.

This represents the third area that the government has declared to be suitable for offshore wind after Gippsland, Victoria and Hunter, NSW.

Rather predictably, the decision has been both cheered and booed by the usual commentators with Friends of the Earth welcoming the decision, saying that it is a sign that “an ecologically sustainable offshore wind industry is achievable”, referring to reduction in the size of the offshore area.

The same reduction in size was seized on by a conservative commentator, who said the move represented a backflip by Energy Minister Chris Bowen from his earlier comments that the original, significantly larger area would not impact whales.

What is clear though is that the Government believes that offshore wind will play a key role in its net zero plans as wind turbines are certainly capable of generating power even when the sun isn’t shining.

It also underscores the importance of having multiple solutions.

No one source of renewable energy will be capable of providing all our energy needs. Solar combined with wind offers options to cover each other while grid-scale batteries will serve to firm up the grid and potentially provide baseload power at night.

Gas-fired peaking plants might also serve in the same role as implementation of batteries has been slower than renewable proponents would like while green hydrogen fuelled plants, fuel-cell or otherwise might be a cleaner alternative.