The Organization of the Petroleum Exporting Countries and allies including Russia or OPEC+ will hold their ministerial meeting on Thursday, November 30 to announce the decision on the supply of oil production for 2024. The OPEC+ group surprised the market last week by postponing its 26 from November to November 30 after the oil producers struggled to reach a consensus due to a disagreement over production quotas of the African oil producing countries.
The oil producers are currently negotiating and negotiations are continuing, but no further delay is expected, according to Reuters news agency. Saudi Arabia, Russia and other OPEC+ members have already pledged total oil production cuts of about 5 million barrels per day (bpd), about 5 percent of daily global demand, in a series of steps that began in late 2022.
Read also: Saudi Arabia likely to extend additional oil supply cuts beyond December 2023: Report
This includes Saudi Arabia’s additional voluntary production cut of 1 million bpd, which will expire at the end of December, and a Russian export cut of 300,000 bpd until the end of the year. OPEC+ and its leaders will resolve two consequential oil supply issues at their policy meeting tomorrow.
OPEC+ meeting on November 30: What’s on the agenda?
-The first is whether Saudi Arabia and Russia intend to extend their unilateral cuts, or even increase them, in 2024, or whether they plan to end them as currently scheduled on December 31, 2023. If it is the latter, it would indeed . add 1.3 million b/d to world oil supply. Analysts at S&P Global Commodity Insights believe that such a sudden end to the unilateral cuts is highly unlikely at this point due to its likely large negative impact on prices.
-The second issue, which depends a lot on the first, is whether OPEC+ will reduce previously agreed production quotas for all countries next year to support prices, which have recently fallen to around $80/b for dated Brent. Some baselines for quota calculations may also be adjusted—typically a contentious issue—based on the latest estimates for production capacities.
However, the bottom line is that for prices to stay where they are or increase in the rough $75-$95/b range seen in the last six months, OPEC+ will have to cut supply in 2024 from current levels, according to S&P Global. Considerations for Goods.
“We say this because our data and projections show that OPEC+ will have to cut more than just the voluntary cuts from Russia (300,000 b/d lower oil exports) and Saudi Arabia (1 million b/d below its OPEC target, resulting in production ). of about 9 million b/d). This means that OPEC+ must also make cuts above those made in November 2022 and May 2023 (totaling 3.7 million b/d),” said Bhushan Bahree, Executive Director of S&P Global Commodity Insights.
Read also: India’s crude oil production up 1.3% to 2.5 MMT in October, imports rise after four months of declines: PPAC
Bahree added that balances show that total world liquid supply in the first quarter of 2024 exceeds demand by 3 million b/d, and while there may be stocks in Q3, some builds are still possible in Q2 and Q4.
”While actual inventory levels are unlikely to swing by that magnitude, this highlights the challenge facing OPEC+. For the full year of 2024, liquid supply exceeds demand by 1.3 million b/d in our balances,” Bahree said.
Why 2024 oil supply exceeds demand forecast?
Global demand growth in 2023 is estimated at 1.9 million b/d and in 2024 at 1.5 million b/d, while global demand growth may slow in 2024. Some of that demand growth will be covered by rising natural gas liquids (NGLs). ) and biofuels supply, leaving only about 1 million b/d of refined products to be covered by oil refining. Crude production in non-OPEC+ countries is expected to continue to increase in 2024, at 1.6 million b/d.
“In the context of OPEC+, all of the above means this: the call for OPEC+ oil next year is seen at 35.2 million b/d but group supply will exceed that by about 1 million b/d. In the more immediate future, the call for OPEC+ oil looks much lower than supply in the first quarter of 2024. This highlights the need for OPEC+ to further reduce production if it is to support prices,” said Paul Tossetti, Executive Director, S&P Global Commodity Insights.
”The call for OPEC+ crude will increase throughout the year, peaking at 36.6 million b/d in the third quarter. The call is weakest in the first two quarters of 2024. (The latest data, projections and commentary are released as part of our latest monthly Global Short Outlook later this month.),” Tossetti added.
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Updated: 29 Nov 2023, 18:44 IST