The November OPEC+ meeting resulted in several more members making deep oil supply cuts whilst others stuck to existing reductions. Euronews Business take a look at how the news moved oil markets.
ADVERTISEMENTThe November OPEC+ meeting was held virtually on Thursday, with this meeting potentially being more significant than the last few ones for oil markets. Although the committee did not announce any new group reduction targets for the next year, several members opted for voluntary cuts. These new cuts, along with old ones being continued by Saudi Arabia and Russia, clocked in at about 2.2 million barrels per day.
For the first quarter of the year, Saudi Arabia, one of the biggest producers of oil, led these voluntary cuts, by revealing that it would be continuing its 1 million barrels per day reduction. Iraq followed suit with a cut of 223,000 barrels per day, while the UAE will go for 163,000 barrels a day.
Kuwait will reduce 135,000 barrels a day, with Kazakhstan going for 82,000 barrels and Algeria cutting 51,000 barrels. Oman will also cut 42,000 barrels a day, with Russia continuing its 500,000 barrels a day cut, a combination of refined products and crude oil.
Following the meeting, on Friday morning, Brent crude oil prices were up 0.30% to $80.6 (€73.80) per barrel, largely because oil markets had already priced in these cuts and were even expecting deeper ones.
The OPEC+ committee also revealed that it had asked Brazil to join its ranks, with the country potentially joining in January.
Who are the current OPEC+ members?
The current OPEC+ committee is made up of the original Organisation of Petroleum Exporting Countries (OPEC), as well as its allies.
The original members are the United Arab Emirates, Iraq, Iran, Kuwait, Saudi Arabia, Venezuela, Algeria, Angola, Gabon, Nigeria, Libya, Republic of Congo and Equatorial Guinea.
The non-OPEC countries, or allies, are Russia, Kazakhstan, Bahrain, Brunei, Malaysia, Azerbaijan, Mexico, Sudan, South Sudan and Oman.
However, these cuts may only go so far to bolster oil prices, as other factors such as demand do not seem to be increasing proportionately. Higher interest rates have also further dampened sentiment oil market sentiment, as well as increasing production from the US, which is not part of the OPEC+.
Cracks in the committee?
Ahead of this month’s meeting, the committee has also dealt with a few disagreements. This was primarily due to some members contemplating a split in the last few weeks, due to quota disagreements, pushing the meeting back from November 26 to November 30. This unexpected delay also further weakened global oil prices.
African producers, such as Angola, Nigeria and Republic of Congo are the ones reported to have more of an issue with the OPEC+’s decision to cut supplies further. This is because each oil producing country or ally is given a certain quota to meet, by the OPEC+ committee, and it is in their best interest to try to secure the highest quota possible.
During the committee’s June meeting, these countries were amongst those that were assigned a lower production target, following issues meeting higher ones earlier. As of mid-November, Nigeria was producing about 1.7 million barrels of crude oil, with plans to increase production to 1.8 million barrels by the end of the year.
However, this may still not be enough for the committee’s proposed 2024 quota plan, with Angola also lagging behind, despite investments to increase production. As of now, these three countries have been put under review by the OPEC+, in order to investigate production capacities.
For the review, IHS, Wood Mackenzie and Rystad Energy have been hired.
Why is the OPEC+ so important?
OPEC+ decisions are especially important as they help regulate global oil supply, as a result, impacting oil prices. As the committee controls about 60% of international petroleum trade, as well as 80% of known oil reserves, they have a significant amount of influence on oil markets.
During times of weakening demand and falling oil prices, the committee may decide to cut production, to try and buoy oil prices. This was most recently seen back in June, when Saudi Arabia voluntarily announced that it would be making a reduction of 1 million barrels a day, in order to boost oil prices further. Now, it has confirmed that this cut will continue into Q1 2024, at the very least.
Russia also followed suit and decided in August 2023 to reduce output by 500,000 barrels per day until the end of December 2023, which it has now extended as well.
In the wake of the Israel-Hamas conflict, however, the situation has become even more complicated. Saudi Arabia and other Arab oil producers have been accused of wanting to extend or deepen production cuts in an attempt to retaliate against Western support of Israel.
ADVERTISEMENTAs a result, these producers have been accused of trying to “weaponise” oil , using their influence in oil markets. Saudi Arabia has also used this tactic to “punish” other non-compliant OPEC+ members, such as Venezuela, or Nigeria at times, who may refuse to stick to output cuts and collective decisions of the committee.
What could impact oil demand in 2024?
Currently, oil demand for the first quarter of 2024 is expected to be quite weak, due to slowing global demand and several key economies such as China still struggling to recover adequately. The increased drive to move towards clean energy sources, driven by the introduction of the US Inflation Reduction Act, as well as the reinforcing of climate goals during the COP28 summit, is also likely to further impact oil demand.
However, ongoing geopolitical factors such as the Russia-Ukraine war and the Israel-Hamas conflict are key factors in determining oil demand in the next few months. Although markets have largely priced in the effects of the Russian war, any changes there would cause fresh price shocks and supply chain troubles for oil markets.
The Israel-Hamas conflict is being more closely watched at the moment, due to increased speculations of it spilling over to a wider Middle-Eastern conflict. In such a scenario, other Arab oil producers such as Iran, Iraq, Oman, Saudi Arabia and more could be implicated, both for their direct and indirect support for the warring parties.
Although an agreement was reached with dissenting African producers regarding oil supply for the November meeting, the OPEC+ committee has been vulnerable to more disagreements lately. As the energy transition progresses, especially if global oil demand does not pick up appropriately, these fights could get worse and may even lead to a split within the committee in the worst case scenario.
ADVERTISEMENT
