3 Surprises That Could Rattle Oil Markets in 2024

Wars in the Middle East have historically had outsize impacts on oil prices. So far the Israel-Hamas war has not caused major reverberations, with oil prices mostly falling during the conflict. But in the past week, there are signs that’s starting to change. Yemen’s Houthi faction has attacked oil tankers in the Red Sea in solidarity with Palestinians. The attacks have caused shipping companies to reroute tankers and containerships on much longer journeys, forcing shipping rates higher and sending oil prices about 8% higher. The U.S. has attempted to police the shipping routes near the Suez Canal but has not been able to convince other countries to join in. Should the attacks intensify and force more tankers to avoid the canal for a longer period, it could cause a more dramatic reaction in the oil market.

The war could escalate in other ways that impact oil prices. If Iran gets more directly involved, for instance, it could spark a much more complicated conflict that would almost certainly cause prices to rise by a double-digit percentage.

Venezuela could also spark a 2024 surprise. The government of President Nicolás Maduro has claimed to own a region of Guyana known as Essequibo that’s close to an area that
Exxon Mobil
has been exploring for years. Exxon is producing more than 600,000 barrels of oil per day offshore Guyana, and is set to ramp production up to more than 1 million barrels per day in the coming years, which could amount to a quarter of the company’s production. Maduro says that some areas Guyana is auctioning off are in Venezuelan territory. He has demanded foreign companies leave the disputed area, though oil companies have continued operating.

“We are not going anywhere—our focus remains on developing the resources efficiently and responsibly, per our agreement with the Guyanese government,” Exxon said in a statement.

Insurance companies, however, have taken note of the dispute. Lloyd’s added parts of Guyana to its risky shipping areas list, which could raise the cost of doing business there. A broader conflict involving Guyana would threaten a significant piece of the global oil market and cause prices to spike. In addition, Venezuela has been increasing its production of oil from its own territory after the U.S. eased sanctions. But for Venezuela to continue drilling, Maduro will have to hold free elections in 2024. Should sanctions come back, Venezuela’s production would fall and oil prices would probably rise.

A third potential surprise is that OPEC changes tactics, surprising investors by boosting output and sending prices lower. The cartel and its allies, together known as OPEC+, have repeatedly cut production in the past year, announcing more than 4 million barrels’ worth of cuts for 2024. But those announcements have failed to lift oil prices, as non-OPEC production from the U.S. and elsewhere has surged and demand has been weak. It will be extremely difficult for OPEC to cut more and keep the group together. Already this week, Angola said it would leave to pursue its own strategy. Oil Minister Diamantino Azevedo said that “Angola currently gains nothing by remaining in the organization.”

Most of OPEC’s cuts are expected to last for the entire year, but the group could surprise the market by bringing back some production, retaking market share. Natasha Kaneva, head of commodities strategy at J.P. Morgan wrote “the alliance should unwind some of the voluntary reductions in order to gain operational flexibility when demand growth takes a step down in 2025 (and potentially 2026), when most of the post-Covid demand normalization is behind us and decarbonization policies begin to cut into demand for some products.”

Bringing back supply could result in near-term pain for energy companies. But it would give OPEC more flexibility heading into 2025.

Write to Avi Salzman at [email protected]