OPEC Plus announced a few days ago an additional voluntary cut of 2.2 million barrels per day to support crude prices (Shutterstock)

The OPEC Plus alliance could intervene again if oil prices fall further and demand is disappointing.

But the report noted that what it called "intra-group disagreements" could make a unanimous decision on production policy more difficult next year.

Oil prices rose more than 2 percent on Friday, but the two benchmark crude fell for the seventh week in a row, the longest weekly losing streak in half a decade, on lingering fears of oversupply.

OPEC Plus decided at its last meeting to implement additional voluntary production cuts of about 2.2 million barrels per day, including the extension of the current Saudi and Russian voluntary cuts of 1.3 million barrels per day, but the members of the group did not unanimously agree to extend or deepen the voluntary oil cuts.

Saudi Arabia and Russia also called on all OPEC plus members to join the group's agreement to cut oil production.

Oil Price's report by Tsvetana Paraskova attributed the drop in oil prices following the OPEC Plus decision to:

  • U.S. inventories balloon.
  • Concerns about the Chinese economy.
  • Fears of weak global crude demand growth.

The OPEC Plus group, which includes OPEC and other members, led by Russia, must deal with all bearish signals as the market is currently focused on demand rather than supply.

Oil prices next year

The management of the oil market by the OPEC Plus alliance will be key to determining the fate of prices next year.

It quoted analysts as saying, "The outlook for the oil market depends largely on OPEC Plus policy."

They said recent OPEC Plus cuts would be enough to erase the previously expected surplus in the market for the first quarter of 2024, but the market would look largely balanced during the first half of 2024.

According to the author, ING Group expects Brent crude to trade at a low of $80 early next year, while it expects Brent crude to average $91 per barrel during the second quarter of 2024 when the market returns to deficit.

The American Production Dilemma

OPEC Plus currently faces the same old dilemma: how to counter rising U.S. production and prevent it from undermining the alliance's efforts to support prices.

Non-OPEC Plus supply is growing faster than previously expected, led by record U.S. crude oil production that has continued to rise.

U.S. crude oil production hit a new monthly record of 13.236 million barrels per day (bpd) in September, according to the latest data from the Energy Information Administration.

The OPEC Plus group will have to take into account several variables in market management policies in the coming year, including the "new threat" to its market share amid rising U.S. and non-alliance production.

U.S. production rise challenges OPEC Plus production policy (Reuters)

Demand Factor

Demand is currently seen as a factor driving down oil prices, especially demand early next year at a time when concerns about the performance of the world's two largest economies (the United States and China) dominate market sentiment.

This week, Moody's revised its outlook for the Chinese government's credit ratings from stable to negative, saying the change in outlook reflected the growing risks associated with structurally low economic growth, continued over the medium term and the continued downsizing of the real estate sector.

China's annual GDP growth is expected to slow to 4 percent in 2024 and 2025, and to an average of 3.8 percent from 2026 to 2030, Moody's said.

But China expressed "disappointment" with Moody's decision and said in a statement it had the capacity to address risks and challenges.

It said it withstood risks and challenges from outside and within, resulting in a 5.2% year-on-year rise in GDP during the first three quarters of this year.

Source: Oil Price + Agencies