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Opec output cuts may extend to end of next year

PIF will acquire a 25% stake in Alkhorayef Petroleum through capital infusion and subscription to new shares Reuters/Ahmed Jadallah
PIF will acquire a 25% stake in Alkhorayef Petroleum through capital infusion and subscription to new shares
  • Weakening global economy hits demand
  • Supply from non-Opec countries is rising
  • Analysts say oil could drop to $79 a barrel

Opec+ may need to prolong output cuts until the end of 2024 to support crude prices, according to energy experts.

A weakening global economy and rising supply from non-Opec countries means oil prices are under pressure.

Dong Wang, a Middle East oil markets analyst at S&P Global Commodity Insights, told a conference in Dubai on Wednesday that Opec+ produced 1.2 million barrels per day below target in September.

Of the Opec+ countries, led by Saudi Arabia and including Russia, it is Nigeria and Angola that are underperforming the most, he said.

Wang said that although the Israel-Hamas conflict had raised oil prices and increased market volatility, the conflict has not affected the oil market’s fundamentals so far. 

Moreover, Saudi Arabia, Opec+’s largest producer, is producing 3 million barrels per day below capacity, as is the United Arab Emirates.

“They have a very large spare capacity sitting there waiting to be produced,” Wang said.

Meanwhile, markets have seen increased supply from non-Opec countries.

“The production growth from producers such as the US, Canada, and Brazil will more than meet the incremental growth,” Wang said.

Standard Chartered bank forecast in a report published this week that Brent would rise to $98 per barrel in 2024. But analysts at Kpler, the commodities and shipping specialists, see crude dropping down into the low $80s, potentially even $79 to $80, over the next six months.

Brent crude rise

Brent crude futures rose 38 cents at $85.01 a barrel on Thursday, Reuters reported. 

Opec+ agreed in October 2022 to cut production by 2 million barrels per day (b/d) for the next 14 months until December 2023. 

This year, some major OPEC members announced further voluntary cuts of another 1.6 million b/d from May to the end of the year.

Saudi Arabia has voluntarily cut output by 1 million b/d while Russia reduced production by 300,000 b/d until the end of the year, amid concerns over softening demand in Europe and China.

In October, the Biden administration broadly eased sanctions on Venezuela’s oil sector, further boosting global supply. 

The next meeting of Opec’s joint ministerial monitoring committee, at which quotas will be assessed, is due on 26 November.

In the Middle East, oil demand increased more than 2 percent to 9.3 million barrels per day, and it should grow by 1.4 percent in 2024, S&P said. The growth is mainly driven by transport and petrochemicals, and the demand is coming from the big four countries, Saudi Arabia, the UAE, Iraq and Iran.

In Saudi Arabia, oil demand growth is led by fuel oil, while in the UAE, it is led by jet fuel, as Dubai is a significant aviation centre in the region.