Market realities force Opec+ to delay supply boost

Eight Opec+ members have opted to delay a plan to begin raising crude output from December by one month, as slowing global oil demand growth and rising supply keep the pressure on prices.

The eight — Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman — had already postponed, by two months to December, their plan to start returning supply. But they have now "agreed to extend the November 2023 voluntary production adjustments of 2.2mn b/d for one month until the end of December 2024", the Opec secretariat said on 3 November.

The decision was made to avoid potential oversupply given a well-supplied market after heavy refinery maintenance, one Opec+ delegate said. Expectations of slower demand also led Saudi Aramco to cuts its December official formula prices this week for customers in Asia-Pacific.

End-of-year volatility and uncertainty about Chinese oil demand also played their part in the decision, giving the group more time to see whether China's economy responds positively to Beijing's stimulus measures and to assess market trends for the first quarter, the delegate added.

But at least one Opec source was unhappy with the postponement and concerned that Opec+ has missed its chance to increase supply. "When do we bring back our barrels?" the source said. "No-one knows."

Rising non-Opec+ production from the US, Guyana, Brazil and elsewhere is already expected to meet slowing growth in demand next year. And concerns about the outlook for global oil demand are intensifying in light of slower-than-expected growth in China. The IEA expects oversupply of 1mn b/d next year even without the additional Opec+ oil returning to the market.

The re-election of Donald Trump as US president could further alter the supply-demand balance in a way that does not favour the return of Opec+ crude. Trump's threat of tariffs and trade wars once in office may heighten concerns over slowing economic growth in China and other key markets. And his Iran policy could further destabilise a region on the brink of a sustained wider conflict.

Still, Opec delegates see Trump's promises of cutting energy prices for US consumers as electioneering staples that he will be unable to deliver in practical terms. US shale producers are already producing at record levels and are likely to keep production growth restrained as they prioritise shareholder returns.

Conformity focus

But market dynamics are not the only drivers of Opec+ decision-making. Many in the group face internal political and financial pressure to increase production and oil revenue. Given this background, the decision to delay the production increase keeps the focus on those in the group that have been overshooting their output targets — namely Iraq, Russia and Kazakhstan. The secretariat made a point of underlining the wider group's "collective commitment to achieve full conformity" on 3 November, with a focus on those three countries.

While Iraq, Kazakhstan and Russia have made some progress in reducing output in recent months, all three remained above their effective targets in October under their latest publicly available compensation plans. Kazakhstan fell around 60,000 b/d short of its promise to deliver extra production cuts, according to Argus' latest estimates, having reduced output by around 200,000 b/d to 1.26mn b/d. Iraq was still above its Opec+ target of 4mn b/d and 130,000 b/d above its effective target under its compensation plan. Russia's production was bang on its formal Opec+ target, but 10,000 b/d above its effective target under its compensation plan, which stipulated a first cut of 10,000 b/d in October.