Although OPEC+continues to reduce production this year, international oil prices have been under pressure due to factors such as weak global oil demand and rising oil production in Western countries such as the United States.
Against the backdrop of the expected continued surge in oil production in the United States next year, many market participants have warned that this may force OPEC+to abandon production reduction plans and instead increase production significantly, sparking a market share battle against the United States.
Citigroup's bulk executives even warned in media interviews that this could lead to a halving of international oil prices next year.
OPEC+may abandon production cuts
At the end of November this year, OPEC+reached its latest production reduction plan: it plans to further reduce oil production by 900000 barrels per day in the first quarter of 2024, building on the promised reduction this year.
However, the market did not take this seriously and suspected that its specific implementation would be difficult to achieve the production reduction target. Max Layton, Global Commodity Research Director at Citigroup, said, "The fact has proven that the market is very disappointed with OPEC+'s measures." These measures are "not enough to prevent the gradual deterioration of the oil balance next year.".
In fact, many market participants are already concerned that under the pressure of continuous production increase in the United States, OPEC+may abandon its production restrictions in the short term and provide a large amount of supply to the market to weaken the growing competitiveness of American producers.
Market veteran Paul Sankey believes that due to the strong production of Western countries reducing the impact of OPEC's production cuts, OPEC+may choose to change its attitude and allow oil prices to fall, leading to the bankruptcy of the US oil industry.
"I think specifically, this is a market share battle," Paul Sankey said. However, such a move would also be a blow to OPEC+, as OPEC member states need to rely on oil revenue to support government spending. If oil prices plummet, it will cause a heavy blow to government finances.
Oil prices may face the risk of halving
Citigroup's Leighton believes that if OPEC+member states can work together to achieve production reduction quotas, oil prices may remain balanced in the range of $70-80 per barrel next year. However, if OPEC+abandons production cuts and invests its idle capacity back into production, oil prices may plummet by 30% to 50% - although OPEC+may not be willing to actively try this measure, this situation is not impossible.
However, Leighton also mentioned, "I think this choice (abandoning production cuts) is too painful. OPEC+is likely to reduce production by 500000 barrels per day at an appropriate price next year."
This year, the decline in global oil demand and oversupply have been the main pressures limiting oil prices. Leiden predicts that this situation will continue by 2024, with the global market expected to face an excess of approximately 1 million barrels per day in the second quarter and an excess of approximately 600000 barrels per day for the entire year of 2024.
Is it possible for OPEC+to further reduce production?
Of course, there are also different opinions. For example, Fitch analysts warn that a significant decline in global economic growth may prompt OPEC to further limit oil production.
Fitch Ratings states:
"If the oil market decisively turns to surplus, weak global economic growth in 2024 may prompt OPEC+to further reduce production - although the latest agreement reached at the end of November this year highlights OPEC+'s unwillingness to significantly reduce production."
The rating agency expects global economic growth to decline by 2.1% next year.