OPEC+ to announce oil output policy decision on November 30: From deeper cuts to capacity levels—What's on agenda? | Mint
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Business News/ Markets / Commodities/  OPEC+ to announce oil output policy decision on November 30: From deeper cuts to capacity levels—What's on agenda?
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OPEC+ to announce oil output policy decision on November 30: From deeper cuts to capacity levels—What's on agenda?

The OPEC+ group surprised the market last week by delaying its November 26 to November 30 after the oil producers struggled to reach a consensus due to disagreement over output quotas by the African oil-producing countries.

OPEC+ will announce its oil output policy decision on November 30. (REUTERS)Premium
OPEC+ will announce its oil output policy decision on November 30. (REUTERS)

The Organization of the Petroleum Exporting Countries and allies including Russia or OPEC+ will hold its ministerial meeting on Thursday, November 30 to announce the oil output supply decision for 2024. The OPEC+ group surprised the market last week by delaying its November 26 to November 30 after the oil producers struggled to reach a consensus due to disagreement over output quotas by the African oil-producing countries.

The oil producers are currently holding talks and negotiations are going on, but no further delay is expected, according to news agency Reuters. Saudi Arabia, Russia and other members of OPEC+ have already pledged total oil output cuts of about 5 million barrels per day (bpd), about 5 per cent of daily global demand, in a series of steps that started in late 2022. 

Also Read: 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 is due to 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 its policy meeting tomorrow.

OPEC+ meeting on November 30: What's on agenda?

-The first is whether Saudi Arabia and Russia intend to extend their unilateral cuts, or even enlarge them, going into 2024, or do they plan to end them as currently scheduled on December 31, 2023. If it is the latter, it would effectively 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 time because of its likely large negative impact on prices.

-The second issue, which depends a lot on the first, is whether OPEC+ will reduce previously agreed output quotas for all countries next year to support prices that have lately 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 remain where they are or increase in the rough range of $75-$95/b seen in the last six months, OPEC+ will need to reduce supply going into 2024 from current levels, according to S&P Global Commodity Insights.

“We say this because our data and projections show that OPEC+ will need to cut more than just the voluntary reductions by Russia (300,000 b/d lower oil exports) and Saudi Arabia (1 million b/d below its OPEC target, resulting in production of around 9 million b/d). That means OPEC+ also needs to make cuts over and above those made in November 2022 and May 2023 (totaling 3.7 million b/d),'' said Bhushan Bahree, Executive Director, S&P Global Commodity Insights.

Also Read: India's crude oil output up 1.3% to 2.5 MMT in October, imports rise after four months of declines: PPAC

Bahree added that balances show the total world liquids supply in the first quarter of 2024 exceeds demand by 3 million b/d, and although there may be stock draws in Q3, some builds are still possible in Q2 and Q4. 

‘’Even though actual inventory levels are unlikely to swing by that magnitude, this highlights the challenge facing OPEC+. For the full year of 2024, liquids supply exceeds demand by 1.3 million b/d in our balances,'' said Bahree.

Why does 2024 oil supply exceed demand forecast?

The global liquids 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 get slower in 2024. Some of that demand growth will be covered by increasing natural gas liquids (NGLs) and biofuels supply, leaving only around 1 million b/d of refined products to be covered through crude oil processing. Crude production in countries outside OPEC+ is expected to continue to increase in 2024, by 1.6 million b/d.

“In the context of OPEC+, all the above comes down to this: The call on OPEC+ crude next year is seen at 35.2 million b/d but group supply is set to exceed that by roughly 1 million b/d. In the more immediate future, the call on OPEC+ crude looks to be much lower than supply in the first quarter of 2024. This highlights the need for OPEC+ to reduce output further if it wants to support prices,'' said Paul Tossetti, Executive Director, S&P Global Commodity Insights.

‘’The call on OPEC+ crude will rise through 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 due to be published as part of our latest monthly Global Short-Term Outlook later this month.),'' added Tossetti.

 

 

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 29 Nov 2023, 06:44 PM IST
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