Will OPEC+ Cut Oil Production?

Energy ministers from OPEC+ member countries will decide on the volume of oil production for 2024 on Sunday. At the last meeting held in early June, it was agreed that production would remain at the same level until the end of 2024.

The agreement includes a reduction in output in Saudi Arabia (one million barrels per day from July this year), Russia (300 thousand barrels per day from August), and other countries, totaling a reduction of 1.66 million barrels per day. The most important question ahead of Sunday’s meeting is whether Saudi Arabia will increase production to the agreed level of ten million barrels per day starting January 2024, as highlighted in HUP’s macroeconomic analysis Focus of the Week.

Oil prices have fallen by about ten dollars per barrel since early November, as has Brent, which is priced around 80 dollars per barrel, which ‘assures’ market participants that Saudi Arabia will temporarily refrain from reducing production. OPEC+ states in its report that the market will be under-supplied with oil, which is another argument for expecting an increase in oil production in Saudi Arabia.

The International Energy Agency (IEA) in its monthly report points to a potential risk of market overcapacity at the beginning of 2024 if OPEC+ decides to increase production. If this actually happens, it would reverse the previously described situation, leading to a drop in oil prices, which the Saudis are likely to view unfavorably.

The media agency Reuters cites three OPEC sources, who claim that the meeting will discuss further reductions in oil production. The U.S. is likely to impose new sanctions on the export of Russian and Iranian oil, prompting these two players to increase exports before the sanctions take effect.

In October of this year, the U.S. imposed sanctions on two shipping companies that were transporting Russian oil. Therefore, it is expected that Brent prices in the first half of 2024 will average between 92 and 94 dollars.

According to previous forecasts, in the last quarter of this year, Brent prices were expected to be at 89 dollars per barrel, with a decline to 85 dollars in the last quarter of 2024.