Production Increase Plan Delayed Again, Now Slated for April 2024
OPEC+ (Organization of the Petroleum Exporting Countries and its partners) has recently decided to delay the resumption of oil production by three months to April 2024, with a slower recovery pace expected to conclude by September 2026. This adjustment again disrupts the original plan to increase production by 180,000 barrels a day starting January 2024.
In June 2023, OPEC+ announced a phased plan to restore production halted since 2022, intending to add 2.2 million barrels monthly. However, this goal has been repeatedly thwarted due to global oversupply. The production surge in countries like the United States, Brazil, and Canada has further exacerbated market imbalance. According to data from the International Energy Agency (IEA), even if OPEC+ maintains its current low output, the global oil market is expected to be oversupplied by 2025.
Oil Prices Under Pressure, Citibank and JPMorgan Predict a Drop to $60
Since July 2023, international crude oil prices have cumulatively fallen by about 18%, mainly due to diminished trader attention on geopolitical tensions in the Middle East. Simultaneously, the increase in global supply has kept oil prices under continuous pressure. Both Citibank and JPMorgan forecast that even if OPEC+ maintains existing production cuts, crude oil prices could still drop to around $60 per barrel in 2024.
This price level poses a significant economic threat to many OPEC+ member countries, especially Saudi Arabia. To cope with low oil prices, Saudi Arabia has had to cut spending on its economic transformation plans. As one of the world's largest oil exporters, Saudi Arabia's economy is highly dependent on oil prices, and its fiscal balance price level is much higher than the current market prices.
Delay in Production Increase Provides Time to Assess Future Situations
This pause in the production increase plan also offers OPEC+ a buffer period to assess potential political and market changes, particularly the impact of U.S. political developments on global crude supply. Former U.S. President Donald Trump has indicated that if he returns to the White House, he will restart the "maximum pressure" strategy on Iranian oil exports. This policy could limit Iranian oil exports, affecting global market supply dynamics.
Moreover, OPEC+ hopes to utilize this window period to more deeply evaluate long-term market demand and supply to adjust future production policies.
Market Outlook Remains Complex, Supply Adjustments Are Uncertainties
OPEC+'s latest decision once again reflects the complexity of the global oil market. With the dual pressure of oversupply and weak demand, although production cuts can ease the decline in oil prices in the short term, the challenges for this strategy remain severe in the long run.
In the future, how OPEC+ ensures the economic interests of its member countries while maintaining market balance will be the key consideration in its policy formulation.
