Over the next few days, I’m bringing you my top predictions for 2024. I shared my first prediction with you last week (catch up here).
As I wrote there, we’ve entered an election year, and that means more volatility.
On top of the election, we have a looming Fed pivot to rate cuts, or what I’ve been calling Stage 3. And there are also several flaring geopolitical hot spots to watch (more on this below).
Add to that rising global competition across energy and commodities… dynamic national security issues… and greater implementation of artificial intelligence (AI)…
And the result will be greater distortions across the markets.
As a refresher, a distortion is a disconnect between the markets and the real economy. It’s a term I used in my latest book, Permanent Distortion.
Over the last few years, the Federal Reserve has distorted the markets by flooding them with nearly $9 trillion of easy money at its height.
We’re at the point of no return. The gap between the markets and the real economy is too big to close. The distortion is now permanent.
But it’s possible to turn distortions into profits. And that brings me to my second prediction for 2024: oil prices are heading higher.
Let me explain…
Recession Fears Are Overblown
Oil prices dropped in the last quarter of 2023. This happened for two reasons.
The first reason came down to a false sense of security over OPEC+’s inability to lift prices through production cuts.
The second was predictions of global economic recessions.
In past recessions, oil prices have dropped. That’s because when economies slow down, they need less energy to operate.
The biggest example of that was during the financial crisis of 2008, when oil prices dropped from $139 per barrel to about $39 per barrel within just one year.
But I don’t think we’ll hit a recession this year – in the U.S. or in the other major economies worldwide. And I see the drop in oil prices as temporary. Here’s why…
For one, China is showing signs of investment recovery.
That’s according to the latest statement from the Chinese government last month. In that statement, China unleashed its nine-point strategy to invest more in domestic development.
Now, it’s true that China’s numbers might not always be the most accurate.
But what I can say is that the People’s Bank of China has no restrictions on how much money it can print to move forward domestic initiatives for China. And that includes printing money to shore up the domestic or retail economy.
Also, the International Monetary Fund (IMF) just forecasted that though China’s economy has stumbled of late, it’s still chugging along.
And that its focus on driving household consumption – which has become a key driver of its growth – is boosting, and will continue to boost, the overall economy.
That’s a good sign.
Over in Europe, their anticipated recession looks set to be weaker than expected. In fact, according to the EU Commission, the EU economy will grow by 1.3% in 2024.
That is the opposite of a recession. (In technical terms, a recession happens when you have negative growth for two quarters in a row.)
And the U.S. is showing signs of resilience, meaning it can avoid a recession, too. That’s as long as inflation continues to cool off, or at least not spike.
In addition, as long as job figures remain as strong as they were in the year-end reports, there will be enough people employed to buy things to keep the economy going.
The latest job figures and the White House just confirmed this. In practice, this means growth can slow without hitting a technical recession this year.
The Geopolitical Factor
Recession fears aside, there’s also the OPEC factor I mentioned above. OPEC’s efforts to restrict oil supply production show no signs of stopping.
OPEC member Saudi Arabia announced last month it would extend oil supply cuts into 2024. Saudi Arabia is the largest crude oil exporter on the planet, so what it does matters.
At the same time, we’re seeing the rise of the BRICS+ nations.
As a refresher, until recently, the BRICS bloc was Brazil, Russia, India, China, and South Africa. It will now include Saudi Arabia, the United Arab Emirates, Egypt, Iran, and Ethiopia as new members.
Those new members were originally to include Argentina, but it backed out before the New Year.
The BRICS+ will have more demand for oil amongst themselves this year as these five new countries join the trading bloc. This is already done on paper, but it will take time to unfold in practice.
Finally, geopolitical tensions could cause new supply disruptions.
There’s ongoing combat in Ukraine. Conflict in the Middle East and the Red Sea (a major tanker route for energy supplies) shows no signs of stopping.
And tensions are rising in Taiwan. China is monitoring elections results there in its bid to control trade routes in the South China Sea.
Prediction: Oil Prices Will Hit $100 a Barrel in 2024
I expect all of these factors to push oil prices up. In fact, I predict oil prices will hit $100 a barrel this year.
The International Energy Association (IEA) forecasts that world oil demand will rise faster than expected in 2024. It predicts global oil consumption to grow by 1.3 million barrels each day this year.
Looking at the bigger picture, oil remains the world’s largest energy source. It makes up one-third of the global energy pie. That’s despite global attempts to transition away from fossil fuels.
That’s why at our Energy Distortion Monitor advisory, I’ve recommended companies involved in the production and distribution of oil. Readers have had the chance to book gains of 17.2%, 24.7%, and 29.2% on some of those names in recent months.
Paid-up Energy Distortion Monitor subscribers can catch up on my latest recommendations for that publication here. If you’re not paid-up yet, learn more about a subscription right here.
In the meantime, an easy way to get exposure to companies involved in oil production and exploration is through the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
It holds 54 companies, like Callon Petroleum Company, Antero Resources, and Hess Corporation that would benefit from rising oil prices.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins