OPEC’s 2024 Crude Oil Production Cuts, Explained
On November 30, 2023, OPEC (Organization of the Petroleum Exporting Countries) and its allies, collectively known as OPEC+, agreed to cut oil production by 1 million barrels per day (bpd) starting in January 2024. This decision was driven by several factors, but it might be helpful to consider OPEC’s motivations. In much of the world – particularly countries that are net crude oil importers – OPEC’s motivations are frequently at odds with the economic desires of those countries. OPEC seeks to maximize the value of the crude oil reserves of member countries. This is generally official government policy. Contrast that to the government policies of the U.S., which generally revolve around a desire for stable, but low prices for energy. That isn’t necessarily what U.S. oil companies seek, so that often pits the objectives of the U.S. government against those of the U.S. oil industry. In OPEC countries, the goals are aligned. In many cases, the governments of these countries generate most of their revenues from the sale of crude oil into the export market. So, OPEC seeks the highest possible oil price they can get, without putting the world into recession, or creating incentives for rival production and conservation efforts. While controlling supply to influence prices, OPEC also wants to maintain or grow its share of global oil production and export volumes. Losing too much market share undermines its ability to impact the market. Prior to the shale oil boom in the U.S., OPEC could more easily achieve these objectives. But, due to the surge of U.S. oil production, it is impossible now for OPEC to prop up prices without also providing more incentives for U.S. production. Thus, the cartel has lost some power over pricing. Nevertheless, OPEC and its allies produced about 50% of the world’s oil in 2022, and they control over 70% of the world’s proved reserves. Therefore, they do still possess significant power to influence global oil prices. But it’s often analogous to turning a big ship. It takes time for OPEC’s actions to impact the market. OPEC will announce a production cut, and if they follow through it will eventually dry up some of the excess supplies. At the same time, non-OPEC countries like the U.S. are increasing production, which helps offset OPEC’s production cuts. It’s like an arms race between OPEC and the U.S., and so far, the U.S. has been largely able to increase production enough to negate most of the impact of OPEC’s cuts. One final thought is that OPEC has wielded production cuts as a political weapon. This is one reason I expected the cartel to cut production, and why they may cut production again next year as we head toward the presidential election. I think OPEC members like Saudi Arabia and allies like Russia would prefer to see Donald Trump reelected, and they may therefore try to drive prices up ahead of the election. It will be harder for President Biden to win reelection if gasoline prices are skyrocketing ahead of the election, so this will be something to watch in 2024.
Netherlands overtakes India as Nigeria’s biggest oil buyer
The Netherlands has overtaken India as the biggest buyer of Nigerian crude oil, marking a change in the dynamics of the West African nation’s energy exports. Data from the National Bureau of Statistics showed the Netherlands bought Nigerian crude oil worth N2.5 trillion in the first nine months of 2023, while India’s imports from Africa’s top producer was valued at N1.6 trillion. Indonesia and France occupied second and third positions as they purchased Nigerian crude worth N1.72 trillion and N1.65 trillion respectively as of September 2023.
Threatening the oil market was a step too far by the Houthis
With each passing day, the global shipping crisis intensifies due to repeated attacks by Houthi rebels from Yemen on vessels in and around the Bab el-Mandeb strait. These attacks, backed by Iran, are prompting major international shipping companies to announce a halt to navigation in the Red Sea, opting instead for the longer route around Africa’s Cape of Good Hope. Just on Monday, British Petroleum, a giant in the energy sector, declared that its tankers would not sail in the Red Sea until further notice – a statement that serves as a warning signal to energy markets worldwide and ironically brings the potential solution to the crisis under closer scrutiny. For the global energy market, the significance of the Suez Canal, Bab el-Mandeb and the Red Sea is paramount. The majority of oil and natural gas exports from Gulf countries to Europe and North America pass through these vital waterways, both by sea and through pipelines. In the first half of the current year, shipments of oil through these routes constituted approximately 12% of the total globally traded oil at sea. Likewise, liquefied natural gas shipments through these pathways represented 8% of the global trade in this commodity, according to data published by the U.S. Energy Information Administration. The Suez Canal, connecting the Red Sea to the Mediterranean, is not the sole means of transporting oil from the Red Sea. The Sumed or Suez-Mediterranean pipeline, established by several Arab countries in 1974, serves as an alternative for oil transportation outside the Suez Canal. Spanning a submarine-like structure in the Gulf of Suez and extending through Egyptian territory to the Mediterranean port city of Alexandria, this pipeline can handle up to 2.5 million barrels per day. However, its capacity largely depends on the entry of tankers into the Red Sea. In other words, more oil barrels pass through the Red Sea than through Bab el-Mandeb and the Suez Canal combined. The situation is different for liquefied natural gas, as the minimal amounts of this commodity in the Red Sea.
Russia eyes additional oil export cuts of about 50,000 bpd in December
Russia said on Sunday it would deepen oil export cuts in December by potentially 50,000 barrels per day or more, earlier than promised, as the world’s biggest exporters try to support the global oil price. Saudi Arabia and Russia, the world’s two biggest oil exporters, called in December for all OPEC+ members to join an agreement on output cuts after a fractious meeting of the producers’ club. Russian President Vladimir Putin visited Riyadh shortly after the meeting of OPEC+, which brings together the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies. Russian Deputy Prime Minister Alexander Novak, Putin’s top oil and gas point man, was quoted by Russia’s three main news agencies as saying that Russia would deepen cuts beyond the 300,000 barrels per day of cuts already agreed for this year. “Already in December we will add additional volumes,” Novak was quoted as saying by Interfax news agency. “By how much, we’ll see based on the results of December – there may be an additional 50,000 bpd, maybe more.”
Analysts Say Oil Prices Unlikely To Hit $100 In 2024
Surging non-OPEC+ oil production and significant storage space held by the OPEC+ group will continue to put downward pressure on crude oil prices next year, analysts say. Barring a major geopolitical escalation resulting in a large supply outage—which cannot be discounted—, oil prices are unlikely to reach $100 a barrel in 2024 as American oil production and exports are rising faster and higher than expected, and market sentiment about demand is downbeat, especially for the first half of 2024. With its latest announced cuts for the first quarter of 2024, the OPEC+ alliance is trying to keep tight control over the global oil supply. But the group faces record-breaking U.S. oil production and rising supply from other non-OPEC+ producers, including Brazil, Guyana, Canada, and Norway. Brazil has been invited to be part of OPEC+ starting in January 2024, but it has already said that it would not take part in any production cuts. OPEC+ is trying to keep a floor under oil prices (at the expense of its market share), but it may not succeed in propping up prices too much. This is especially true if the group fails to extend the cuts beyond March 2024, analysts say. The group’s production cuts “help defend a floor in oil prices, but more cuts equate to more spare capacity,” Stacey Morris, head of energy research with VettaFi, told MarketWatch. “That dynamic arguably puts a lid on the upside for oil prices,” Morris added. Warren Patterson, Head of Commodities strategy at ING, wrote in a note earlier this month that “given the scale of cuts we are seeing, OPEC is sitting on a substantial amount of spare capacity.” OPEC, including Iran, has some 5.5 million barrels per day (bpd) of spare capacity, according to ING. “This spare capacity should also offer some comfort to markets given that should we see significant price strength, one would expect this capacity to start to return to the market,” Patterson said. At any rate, the oil market management from OPEC+ would be key to where prices will go next year, he noted. ING sees Brent Crude trading in the low $80s early next year, while it forecasts Brent to average $91 per barrel over the second half of 2024, when the market will return to deficit. However, non-OPEC+ supply is growing at a faster pace than previously forecast, led by record U.S. crude oil production, which continued to soar despite a flat or falling rig count compared to this time last year. The United States is “now the global swing producer, not Saudi Arabia, and especially not Russia,” Robert Yawger, executive director for energy futures at Mizuho Securities USA, told MarketWatch’s Myra Saefong. The United States is now on track to deliver a supply increase of 1.4 million bpd 2023, accounting for two-thirds of the 2.2 4 million bpd non-OPEC+ production growth this year, the International Energy Agency (IEA) said in its monthly report this week. At the same time, OPEC+ production is set for a 400,000 bpd decline, which would reduce its market share to 51% in 2023 – the lowest since the bloc’s creation in 2016, the agency added. Record-high U.S. oil production is a “huge problem” for OPEC+, Paul Sankey at Sankey Research told CNBC after the latest OPEC+ meeting at the end of November. The solution for Saudi Arabia could be to just flush the soaring non-OPEC+ output out by flooding the market with crude and thus sinking oil prices to levels below the U.S. profitability threshold, Sankey said. If OPEC+ were to unwind the cuts after March 2024, oil prices could crash by 30%-50% if most of the spare capacity comes online, Citigroup’s global head of commodities research, Max Layton, told Bloomberg TV this week. “They can balance this market and keep these prices at $70 to $80 if they all work together,” Layton said. If OPEC+ producers continue to work together and not choose to flood the market with oil to flush out the U.S. competition eating into their market share, they may have to continue a tight control on supply for the next few years, according to Rapidan Energy Group. “For the next several years, at least, continually unified, vigilant, and effective OPEC+ supply management will be required to prevent a collapse in oil prices,” Rapidan said in a report this week carried by Bloomberg. “While oil demand isn’t about to peak, neither is non-OPEC+ supply growth,” Bob McNally, Rapidan’s founder and a former White House official, said. “So OPEC+ has its work cut out for it over the next few years. But toward the end of the decade, a price boom will follow the bust. Buckle up.”
India’s Russian oil imports hit 4-month high in November, up 3% on month
India’s Russian oil imports in November rose to a 4-month high of 1.6 million barrels per day (bpd), up 3.1% from October, making up about 36% of the nation’s overall imports last month, data obtained from trade sources showed. Russia became India’s top oil supplier this year as the south Asian nation was drawn to Russian oil discounts after some Western companies shunned purchases from Moscow following its invasion of Ukraine in February last year. India, the world’s third biggest oil importer and consumer, has traditionally relied on Middle Eastern producers for meeting the bulk of its oil needs and rarely made purchases from Russia in the past due to high transportation costs. Last month, India overall imported about 4.5 million bpd oil, a decline of about 4.5% from October and a growth of 13% over the same month last year, the data showed. The sources declined to be identified as they are not authorised to speak to the media. Iraq and Saudi Arabia were the next top oil suppliers to India after Russia in November. Higher purchase of Russian oil has dented the share of Middle Eastern oil in India’s crude diet. The share of Middle Eastern oil in India’s November oil imports was about 46% compared with 48% in October, while that of the Commonwealth of Independent States – Russia, Kazakhstan, and Azerbaijan – rose to 39% from 36%, the data showed. In the first eight months of this fiscal year that began April 1, India’s imports of Russian oil rose by 77% to an average 1.7 million bpd, the data showed. Increased Indian imports of Russian oil have also dragged down the share of oil from the member nations of the Organization of Petroleum Exporting Countries in April-November to 48% from about 62% in the same period last year, the data showed.
Adani to invest $100 billion in green energy transition
Billionaire Gautam Adani’s group will invest USD 100 billion in green energy transition over the next 10 years across its ports, power and cement operations as it aims to become a net zero emitter by 2050. The conglomerate is expanding its renewable portfolio to 45 gigawatts as well as building three giga factories to manufacture solar panels, wind turbines and hydrogen electrolysers, it said in a statement. “The portfolio companies will be investing USD 100 billion over the next decade towards achieving energy transition,” it said. The group has set a target to become net zero by 2050 or earlier for five of its portfolio companies — renewable energy firm Adani Green Energy Ltd, power transmission utility Adani Energy Solutions Ltd, ports firm Adani Ports & SEZ Ltd, and cement makers ACC and Ambuja Cements. The portfolio businesses are actively sourcing renewables, electrifying operations and adopting biofuels, and deploying waste heat recovery and energy storage technologies. The road map to net zero transition will require last mile green hydrogen solutions, Adani Group said, adding its businesses have started pilot projects such as development of hydrogen fuel cell electric trucks as part of the switch. Detailing the decarbonisation pathway, the apples-to-airport conglomerate said it is looking to cut Scope-1 emissions by electrification of operations where possible, and adopting green hydrogen and its derivatives (green ammonia) for energy storage, heat and mobility where electrification is not possible. Scope-2 emissions would be cut through sourcing renewable electricity and deployment of waste heat recovery and energy storage technologies such as batteries and hydrogen. “Adani Group plans to invest USD 100 billion in energy transition over the next decade, with 70 per cent of the investments earmarked for clean energy,” it said. It is building giga factories to make 10 GW solar panels, 10 GW of wind turbines and 5 GW hydrogen electrolysers. “Adani’s renewables portfolio is expanding to 45 GW, which would be able to commercialize 3 million tonnes per annum of green hydrogen,” it added. Group chairman Gautam Adani had in recent days shared details of the green investments. “Our commitment to achieving 45 GW of renewable energy by 2030 initiative will help cut annual emissions by an amount equivalent to 80 million tonnes of CO2,” he said in a post on X, formerly Twitter. This reduction would be comparable to eliminating the emissions from petrol cars driving 480 billion kms each year.
Oil demand growth in India to taper in 2024 after bumper years
Oil demand growth in the key Asian market of India is set to slow next year as the spurt in consumption that followed the pandemic fades, echoing a slowdown in China and presenting a fresh headwind for prices. Consumption will expand 150,000 barrels a day in 2024, down from about 290,000 barrels a day seen from 2021 to 2023, according to Rystad Energy Head of Oil Trading Mukesh Sahdev. The drop will return growth near the pace seen from 2011 to 2019, he said. The International Energy Agency, meanwhile, sees growth halving to 100,000 barrels a day, according to its November report. Oil prices have tumbled this quarter on persistent concerns that global supplies are outpacing demand. The drop comes despite plans for deeper output cuts by the Organization of Petroleum Exporting Countries and its allies, with production expanding elsewhere, including in the US. At the same time, crude demand growth is expected to slow next year, casting a pall over the outlook. India is the third-biggest crude consumer, and a vital market for producers from the Middle East as well as from Russia, with Moscow boosting flows after the 2022 invasion of Ukraine. India’s economy has been expanding at a rapid clip — the economy grew 7.6% in the third quarter — lifting demand for gasoline, diesel and other products. While overall oil consumption is at record, the rate of expansion will ease as the one-off lift following the pandemic passes. It is a similar picture in China, the world’s biggest crude importer. In 2024, the country will consume an additional 500,000 barrels a day, according to the median of estimates from 12 industry consultants and analysts surveyed by Bloomberg this month. That’s less than a third of the increase in 2023. The more challenging outlook — coupled with skepticism about the ability of OPEC+ to deliver on planned cuts — has weighed on Brent crude, the global benchmark. After nearing $98 a barrel in late September, prices are now on course for a third consecutive monthly drop. Futures were last near $75. Consultancy FGE is also among those forecasting a slower pace of Indian demand growth in the new year. Dylan Sim, a senior analyst, sees consumption expanding by 20,000 barrels a day less than in in 2023.
Bharat Petroleum may join Reliance, IOCL to secure oil from Venezuela
India’s state-owned oil refiner Bharat Petroleum Corp may be the latest to join the list of local companies buying Venezuela oil after the US lifted sanctions in October. BPCL is looking at buying Venezuela oil, its head of refineries Sanjay Khanna said at an event on Wednesday. “Our refineries are capable of processing Venezuelan oil and we have given our international trade (department) okay to buy it,” Khanna said in an industry event. However, the imports from Venezuela will not be a threat to BPCL’s Russian oil imports, he added. Until now, Reliance Industries, Indian Oil Corp, and HPCL-Mittal Energy from India have booked cargoes of Venezuelan oil since the sanctions were lifted. India, world’s third-largest oil buyer, used to buy a lot of oil from Venezuela before the US imposed sanctions. These sanctions made Indian oil companies lose business to Chinese competitors in 2021. Since the US eased sanctions temporarily in October on Venezuela’s oil industry, people in the oil trade have been waiting to see if India will start buying oil from Venezuela again. Before the sanctions, India used to buy about 10 million barrels of oil from Venezuela every month. A company called Reliance bought an average of five very big tankers of oil from Venezuela every month during 2018-2019, according to an analyst named Viktor Katona from Kpler, a company that studies this information. Bloomberg reported earlier this month that private refiner Reliance Industries had arranged for the booking of two supertankers, namely C. Earnest and C. Genuine. These tankers are set to load crude oil shipments from Venezuela from December to early January. Another arrangement involves the Very Large Crude Carrier Eucal, hired by Reliance to transport Venezuelan crude to India in early December. Altogether, these three vessels have the capacity to carry up to 6 million barrels of crude oil.
Oil Prices Continue to Fall Ahead of the EIA Report and Fed Meeting
Crude oil prices began the day with a loss in Asian trading today as concerns about oversupply and weak demand continued to weigh on prices. Traders are also waiting for the outcome of a Fed meeting today and the Energy Information Administration’s latest weekly oil inventory report. Reuters noted in a report that recent economic data had reinforced expectations that the Fed was not going to start cutting rates in early 2024, which was translated as a bearish factor for oil since higher interest rates discourage increased consumption. Meanwhile, in more bearish news, Russian oil exports hit the highest since July, according to ANZ analysts cited by Reuters, which deepened doubts about how much of the recently agreed additional OPEC+ output cuts would actually be implemented come January. News that U.S. oil production is rising did not help matters, either, adding fuel to oversupply concerns that have flipped the futures market into a contango until the middle of 2024, according to Bloomberg. “A US-led bump in non-OPEC supply and doubts over OPEC compliance colliding with some prospects of demand softening,” is how Mizuho Bank’s Asia head of economics and strategy, Vishnu Varathan described the situation to Bloomberg. Oil prices have shed about 25% since September despite OPEC+ efforts to put a floor under benchmarks. WTI is currently trading below $70 per barrel while Brent crude has slipped below $75 per barrel. Normally, falling crude oil prices would encourage more consumption but right now it seems there is serious doubt this will be happening anytime soon. At the same time, supply perceptions have swung from deficit to oversupply in a matter of months, mostly on the back of production updates outside OPEC and especially in the U.S., where the EIA said oil supply was seen growing by 300,000 bpd in 2024.