Reports citing OPEC+ representatives revealed on November 27 that Saudi Arabia, the de facto leader of OPEC+, is urging other oil-producing nations in the group to reduce their oil production quotas to stabilize the global market. However, this proposal is not receiving unanimous support from all member countries.
Following this news, West Texas Intermediate (WTI) crude futures saw an intraday increase of over 0.6%, reaching a daily high of $76.16, while Brent crude futures rose by 0.5%, peaking at $81.14. Nevertheless, oil prices later fell, with WTI January crude futures closing down at $74.86 per barrel, a 0.90% decrease, equivalent to a $0.68 drop.
Since July this year, Saudi Arabia has unilaterally slashed its oil supply by 1 million barrels per day and is now seeking further support from its allies. However, the negotiation process is proving to be challenging and difficult to coordinate. This difficulty led OPEC+ to postpone its November meeting by four days to November 30 and switch from an in-person meeting in Vienna to a virtual one, a move that initially caused a significant drop in the oil market.
The main point of contention lies with African oil-producing countries within OPEC+, particularly in Nigeria and Angola, where there are obstacles regarding production quotas. Insiders revealed that over the past weekend, the oil-producing nations were nearing a compromise on this issue, but as of Monday, a final agreement had not been reached.
It remains unclear whether the United Arab Emirates, another significant oil-producing country in OPEC+, is facing pressure to abandon its plans to increase production. The UAE had been granted a slight increase in production at the OPEC+ meeting in June, allowing it to boost its capacity by 200,000 barrels per day starting from January next year to utilize its new production investments.
Analysts from the Eurasia Group stated in their latest report that given the weak fundamentals and bearish market sentiment, OPEC+ might need to announce another formal production cut. If the additional daily reduction is less than 1 million barrels, the current oil price, which is hovering around $80 per barrel, could face downward risks, potentially dropping to near $75 or just slightly over $70. OPEC+ might not want to take this risk, especially considering the seemingly weak market in the first half of 2024.
The final outcome largely depends on whether Saudi Arabia is willing to bear the largest share of any new production cuts. The delay of the OPEC+ meeting indicates that managing the market has become more challenging in the short term, particularly as it raises questions about the group's cohesion.
Banks like JPMorgan Chase anticipate that OPEC+ might proceed with further production cuts.
Over the past two months, oil prices have cumulatively fallen by 17%, increasing the pressure on OPEC+ to intervene in the market. Early next year, the crude oil market might weaken further, with institutions including the International Energy Agency (IEA) predicting a new surplus in oil supply.
