Investing.com – Crude oil prices have retreated of late, but the situation is likely to change soon as US oil production begins to slow, according to Wells Fargo.
After being positive for most of 2024, year-to-date crude-oil returns recently slipped into the negative. Brent, the main global benchmark price, is down 3.5%, and the main US benchmark price (West Texas Intermediate, or WTI) is lower by 0.4% on the year.
Crude-oil prices have given back this yearβs gains for a mix of demand and supply reasons, analysts at the US bank said, in a note dated Sept. 23.
βFor starters, on the demand side, the global economy has been slowly softening. On the supply side of crude oil, markets have become worried that the worldβs two largest producers, OPEC+4 and the U.S., will accelerate production growth,β Wells Fargo said.
The US bank understands the demand and supply fears, but suspects that they are already baked into crude-oil prices.
βWhile it is true that global crude-oil demand has been soft through much of 2024, the weakness does not appear to be accelerating. This is important because global liquidity has started to pick up, as evidenced by central banks beginning to cut interest rates,β Wells Fargo said.
Additionally, on the supply side, both OPEC+ and the U.S. are more likely to shrink production than grow it with crude oil prices in the $60s and $70s per barrel, the bank added, with OPEC+ already saying as much.Β
A few weeks back, the group stated that it will not unwind planned production cuts that had been scheduled to begin in October 2024.Β
For the U.S., the bank thinks production growth will soon slow because the average cost to open a new shale well sits near $64 per barrel.
βThe bottom line is that crude oil prices have been soft in recent months, but we suspect that they will firm soon β on the supply side, the worldβs largest oil producers, OPEC+ and the U.S., have little incentive to grow production at todayβs prices,β Wells Fargo said.
This post is originally published on INVESTING.
