Reviewing The Accuracy Of 2024 Energy Sector Predictions

“It’s tough to make predictions, especially about the future.” – Yogi Berra

Forecasting the energy sector is no exception. Each year brings unexpected twists, market shifts, and geopolitical developments that make forecasting this sector especially challenging.

As we close out 2024, it’s time to assess how this year’s energy predictions fared and what they tell us about the dynamic nature of the industry. At the beginning of each year, I make several predictions about the energy sector. You can see those predictions and read the context in From Oil Production to Energy Policies, 2024 Energy Sector Predictions.

These predictions are designed to be specific, measurable, and meaningful, providing a clear benchmark to assess their accuracy at year-end. Below is an evaluation of five major predictions made for 2024, along with a final verdict on their outcomes.

1. Total U.S. oil production will again set a new annual production record.

Outcome: Correct.

This prediction was straightforward, as U.S. oil production had already reached record levels in 2023. The momentum continued in 2024, with U.S. oil production once again setting a new world record for annual output by nearly 3%. This achievement underscores the ongoing strength and resilience of the U.S. oil industry, driven by advancements in technology and robust demand.

2. The daily average price of WTI in 2024 will be between $70/bbl and $75/bbl.

Outcome: Incorrect, but very close.

The prediction came tantalizingly close to being correct. Through December 16, the average daily price of West Texas Intermediate (WTI) crude oil was $76.88 per barrel, narrowly exceeding the predicted range. Despite some volatility in oil prices throughout the year, this slight miss reflects how close the actual outcome was to the projection. Even with oil prices dipping below $70 toward year-end, the cumulative average remained above the $75 upper limit, missing the target by just 2.5%.

3. The Biden Administration won’t replace more than 10% of the oil removed from the SPR since Biden was inaugurated.

Outcome: Incorrect.

This prediction assumed that the Biden Administration would pause replenishing the Strategic Petroleum Reserve (SPR) in the lead-up to the 2024 election. The prediction was based on the removal of 287 million barrels from the SPR since President Biden’s inauguration, suggesting that no more than 28.7 million barrels would be replaced.

Contrary to expectations, the administration consistently purchased oil in small increments throughout the year, leading to a total of 46.3 million barrels replenished by December. This represented more than 16% of the barrels withdrawn, surpassing the prediction threshold.

4. The average natural gas price will be higher than it was in 2023.

Outcome: Incorrect.

Despite early optimism for a rebound in natural gas prices after their steep decline in 2023, this prediction did not materialize. The Henry Hub natural gas spot price averaged $2.15 per million British thermal units (MMBtu) through December 16, falling short of 2023’s $2.53/MMBtu average.

Mild winter weather and record U.S. natural gas production contributed to an oversupplied market, offsetting the growing demand for liquefied natural gas (LNG) exports. This miscalculation highlights the unpredictability of natural gas markets, even amid structural demand growth for LNG.

5. The energy sector will return at least 10%.

Outcome: Incorrect.

The prediction that the energy sector, as represented by the Energy Select Sector SPDR ETF (XLE), would return at least 10% proved overly optimistic. Energy prices remained moderate throughout the year, and the sector significantly underperformed the broader market.

As of December 26, the XLE posted a total return of just 4.2%, making it one of the weakest-performing sectors in the S&P 500. This underperformance reflects subdued oil and gas prices and a rotation of investor interest into other sectors like technology and consumer discretionary.

Final Assessment

Overall, the 2024 energy sector predictions had mixed accuracy. The record-breaking U.S. oil production forecast was spot-on, but the remaining predictions missed the mark to varying degrees. However, some of the inaccuracies were narrow, such as the WTI price projection, which came within 2.5% of the upper limit.

Predictions about natural gas prices and the energy sector’s returns proved overly optimistic, influenced by factors like milder-than-expected winter weather and moderate energy prices. The SPR prediction underestimated the administration’s ongoing efforts to replenish reserves, reflecting a misjudgment of political strategy.