Speaking after the November 30 OPEC+ meeting, Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie, said: “The decision by OPEC+ to continue with its previously announced production cuts and Saudi/Russia to extend their voluntary production cuts to the end of Q1 2024 is not a surprise, given current pricing and the uncertainty in the market over the strength of the global economy and oil demand growth. What is new is the additional voluntary cuts for Q1 2024 and announced by several OPEC+ producers.”
The full tally of the additional cuts has not yet been announced, but so far four countries are joining Saudi Arabia and Russia in agreeing to additional voluntary cuts for the first quarter. Saudi Arabia will continue its 1 million b/d reduction and Russia will reduce its exports by 500,000 b/d with 0.3 million b/d crude oil exports and the balance 200,000 b/d of fuel oil exports. The other countries that have announced cuts are Algeria, Kazakhstan, Oman and Kuwait.
The outcome, with additional voluntary cuts beyond Saudi Arabia and Russia’s which have been in place since July, could tighten the Q1 2024 market further depending on adherence levels. Wood Mackenzie’s short-term forecast already assumed a continuation of the Saudi and Russia voluntary cuts. Despite this production restraint, Brent prices are in the low $80s a barrel (bbl) range, similar to the start of this year. This is despite oil demand reaching record levels of over 102 million barrels a day (b/d) during Q4 2023. Wood Mackenzie’s forecast shows a balanced market for 2024 with demand growth of 2.1 million b/d to be nearly matched by supply gains. This is different from 2023 when demand growth of 1.9 million b/d outpaced supply growth of 1.3 million b/d, due largely to OPEC+ production restraint.
Hittle said, “Prices are currently weighed down by expectations of slow demand growth in China and the US, reflecting their respective challenges of the property sector and interest rates remaining higher for longer. Sentiment is jittery about the prospects of economic growth and strong oil demand growth next year.”
“In our forecast, Q1 2024 could be seen as a challenge for OPEC+ as seasonally global supply growth moderately outpaces demand, and inventories build in a typical seasonal pace.” The additional voluntary production cuts reflect that concern about the market balance. Overall, non-OPEC supply growth in 2024 will satisfy about half of global demand growth, which is an improvement for OPEC compared with this year when non-OPEC supply grew at the same rate as demand. With demand uncertainty, the task for OPEC+ to maintain a market balance will not be straightforward,” said Hittle.