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Wednesday, November 22, 2023
By S&P Global Commodity Insights
How OPEC+ and its leaders resolve two “consequential” oil supply issues will be among the things to watch at this week’s ministerial meeting in Vienna.
The first: Whether Saudi Arabia and Russia intend to extend their unilateral cuts, or even enlarge them, going into 2024. Or if they plan to end the existing cuts at the end of 2023, as currently scheduled.
Phasing out the cuts would effectively add a combined 1.3 million barrels per day (b/d) to world oil supply that is already plentiful. Unless offset by cuts elsewhere, a sudden end to the Saudi/Russia unilateral cuts is seen as unlikely given the potential negative impact on markets and prices.
The second: Whether OPEC+ will reduce previously agreed output quotas for all countries next year to steady markets and support prices that have fallen recently to around $80 per barrel for Brent. This will be highly dependent on how the first issue (status Saud/Russia cuts) plays out.
“Next year will be a challenge for OPEC+. The bottom line is that for prices to remain about where they are, or in the rough range of $75-$95 of the last six months, OPEC+ will need to reduce supply going into 2024 from current levels.” – Bhushan Bahree, Executive Director, S&P Global Commodity Insights
S&P Global Commodity Insights expects total world liquids supply to exceed demand by 1.3 million b/d in 2024 as demand growth slows. At the same time, production outside of OPEC+ continues to grow and is expected to rise 2.3 million b/d in 2024.
In the context of OPEC+, all comes down to this: The need for OPEC+ crude next year is seen at 35.2 million b/d but the group’s supply is set to exceed that by 1.1 million b/d, the analysis says.
“Non-OPEC+ supply growth alone will be sufficient to meet world oil (total liquids) demand growth in 2024 and 2025. Amid slowing demand and a well-supplied market, OPEC+ will need to reduce output further if it wants to continue supporting prices and steady markets.” – Paul Tossetti, Executive Director, S&P Global Commodity Insights
The decisions coming out of the November 26 meeting will illustrate how OPEC+ plans, at least in the short term, to face a challenging oil supply and demand situation in 2024—reduce oil supply further or risk a price reaction, the analysis says.
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