Investing.com – Crude oil prices have fallen lately, but the situation is likely to change soon as U.S. oil production begins to slow, according to Wells Fargo.
After being positive for most of 2024, crude oil returns have turned negative since the start of the year. , the main global benchmark price, is down 3.5%, and the main US benchmark price (West Texas Intermediate, or WTI) is down 0.4% this year.
Crude oil prices have given back this year’s gains due to a mix of supply and demand reasons, U.S. Bank analysts said in a Sept. 23 note.
“First of all, the global economy is slowly weakening on the demand side. On the supply side of the economy, markets have become concerned that the world’s two largest producers, OPEC+4 and the US, will accelerate production growth,” Wells Fargo said.
The US bank understands the concerns about supply and demand, but suspects that these are already reflected in crude oil prices.
“While it is true that global crude oil demand has been weak for much of 2024, the weakness does not appear to be accelerating. This is important as global liquidity begins to strengthen, as evidenced by central banks beginning to cut interest rates,” Wells Fargo said.
Moreover, on the supply side, both OPEC+ and the U.S. are more likely to shrink than grow output, with crude oil prices in the $60 to $70 per barrel range, the bank added, while OPEC+ has already said so.
A few weeks ago, the group stated that it will not reverse planned production cuts, which were set to begin in October 2024.
For the US, the bank thinks production growth will slow soon as the average cost of opening a new shale well is almost $64 per barrel.
“The bottom line is that crude oil prices have been soft in recent months, but we suspect they will rise soon. On the supply side, the world’s largest oil producers, OPEC+ and the US, have little incentive to grow production at current prices. ” said Wells Fargo.
