Members of the OPEC+ oil cartel are weighing a range of production options as they gear up for their meeting this week in Vienna, where they will decide whether to extend oil production cuts or deepen them heading into 2024.
Ahead of the meeting, here’s a look at where oil markets and analysts’ predictions stand.
Since late 2022, members of the OPEC+ alliance have slashed production by a combined total of 5.16 million barrels per day, or roughly 5% of total daily global demand.
This number includes voluntary reductions from Saudi Arabia and Russia, which took a combined 3.66 million bpd off the table earlier this year.
Despite these cuts, however, prices for the international benchmark Brent crude have continued to fall in recent months, dropping by 20% since September and remaining below the $80-per-barrel threshold typically seen as the low end of the target price for producers.
That’s prompted speculation that OPEC+ could further scale down production through early 2024, though by how much, and for how long, remains to be seen.
OPEC+ said in its most recent monthly report that oil market fundamentals remain strong, dismissing so-called negative sentiment and reiterating its strong demand forecast for 2024, when it predicts oil demand will rise by 2.25 million barrels per day.
Internal deliberations
Despite that bullish projection, however, members of OPEC+ appear to be split on whether or not to extend or deepen output cuts. Early Wednesday, the alliance pushed back its ministerial meeting from Nov. 26 to Nov. 30, a surprise announcement that reportedly came as member countries struggled to agree on production levels.
Oil prices fell Wednesday on the news that OPEC+ was unexpectedly postponing its meeting, with both Brent crude and U.S.-based West Texas Intermediate prices tumbling below $75 per barrel by mid-morning.
Deepening cuts
The Financial Times reported on Friday that OPEC+ is considering deepening its oil production cuts by an additional 1 million barrels per day, news that caused both the international oil benchmark, Brent crude, and U.S.-based West Texas Intermediate to settle 4% higher by the time markets closed.
Several OPEC+ sources also told Reuters they are expecting to deepen production cuts, though they declined to say how much.
Goldman Sachs also said in a market note Tuesday that the possibility of OPEC+ deepening its production cuts should not be ruled out. Based on their latest statistical modeling, analysts said, the possibility of additional cuts remains “on the table” and could cause prices to rise by a few dollars in the first several months of 2024.
Goldman forested a “significant 35% subjective probability” that OPEC+ may move to deepen existing cuts and cited a higher likelihood that Russia and Saudi Arabia will extend their voluntary supply cuts through the first several months of 2024.
“Our base case is that policymakers leave the voluntary group cut unchanged given near-average inventory levels and timespreads, an already low Saudi market share, and OPEC’s strong demand forecast,” analysts said.
A deeper cut could be spread out across major producers to maximize efficacy in a short period and push up Brent prices to OPEC’s target range of between $80 to $100 per barrel, the Goldman analysts said.
“One option is a 0.5-1 million bpd cut through Q1 shared proportionally among the large producers which cut in April, including Saudi Arabia, Russia, the UAE, Iraq, and Kuwait,” they added.
Saudi strain
Meanwhile, some have argued that the biggest OPEC+ producers, primarily Saudi Arabia, cannot afford to scale back oil production further any more than they already have.
For Saudi Arabia, any additional oil cuts could risk economic contraction. Its economy is still heavily reliant on oil profits, and further production cuts could cause the kingdom’s economy to shrink for the first time since the peak of the coronavirus pandemic in 2020.
“I would expect any cut would be modest,” longtime commodities analyst John Kilduff told Reuters. “The Saudis have cut so much production, I don’t know how much more they can do.”
Other voices
Meanwhile, the head of IEA’s oil markets and industry division said the global oil market will see a slight supply surplus in 2024 even if OPEC+ nations extend their current cuts through 2024.
While markets are currently in a deficit and stocks are declining “at a fast rate,” IEA’s head of oil markets and industry Toril Bosoni told Reuters, the delicate balance risks swinging oil markets toward a surplus in the event of near-term uncertainty.
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“Global oil stocks are at low levels, which means that you risk increased volatility if there are surprises on either the demand side or the supply side,” Bosoni said.
Oil prices have continued to fall since late September, when prices stood at about $98 per barrel, contradicting OPEC’s hopes that prices would rebound in the last few months of the year amid higher demand and an increase in refining activity from China.
