In a year marked by Middle East tensions and production concerns, crude oil futures plunged by more than 10% in 2023, experiencing their largest annual decline since 2020.
Presently, the Organization of the Petroleum Exporting Countries (OPEC) is reducing output by approximately six million barrels per day, equating to roughly 6% of global supply.
Brent crude closed at $77.04 per barrel, marking a decrease of 11 cents or 0.14%
On the final trading day of 2023, Brent crude closed at $77.04 per barrel, marking a decrease of 11 cents or 0.14%. Similarly, US West Texas Intermediate crude settled at $71.65 per barrel, down 12 cents or 0.17%. Both contracts experienced declines of over 10% throughout 2023, ending the year at their lowest levels since 2020.
According to S&P Global Commodity Insights, a slowing macroeconomic landscape was aggravating the challenges of declining energy demand growth, compounded by geopolitical developments in various regions that either diminish energy supply or increase the likelihood of supply disruptions.
What was the Outcome of the Latest OPEC+ Meeting?
To counter seasonal oil demand weaknesses and downward price pressures, certain OPEC+ members intend to reduce oil production by approximately 900,000 barrels per day (b/d) in the first quarter of 2024.
Saudi Arabia, which has independently reduced its output by 1 million b/d since July, will extend this reduction until the first quarter of 2024. Brazil was anticipated to join the alliance in January 2024, further expanding its reach.
Bhushan Bahree, Executive Director at S&P Global Commodity Insights cited that at a critical juncture, the recent OPEC+ decisions bolster group cohesion amid forthcoming oil oversupply concerns and extend its influence.
Bahree further explained that given the substantial supply cuts by the OPEC+ members, the prospect of further reductions may face resistance. However, supply cuts by other producers, regardless of the rationale, would be treated as a welcome relief.
The reductions disclosed after the virtual ministerial meeting were voluntary measures and not formal adjustments to OPEC+ quota levels. This implied that market shares within OPEC+ remain officially unaffected.
Additionally, Russia plans to cut an extra 200,000 b/d in Q1 2024, and several OPEC members, along with non-members like Kazakhstan and Oman, have pledged further production cuts during this period.
Paul Tossetti of S&P Global Commodity Insights notes the evolving strategies of OPEC+ amidst a complex global oil market influenced by factors like increased production in the Americas and the long-term impact of climate change and energy transition.
2024 Crude Oil Forecast
Elevated crude prices have spurred investment and production growth outside of OPEC+, notably in the United States, raising uncertainty about future supply cuts.
Kurt Barrow of S&P Global Commodity Insights noted that OPEC+ has curtailed output to support prices amid strong non-OPEC+ supply growth and sluggish demand.
Barrow expressed concern that maintaining member discipline might be challenging in 2024 as market share declines and non-OPEC+ production volumes rise. Reportedly, the crucial factor for crude pricing in 2024 will be OPEC+’s capacity to adhere to voluntary production reductions.
According to S&P Global Commodity Insight’s supply-demand analysis, there will be an oversupply and subsequent stock increases in the first half of 2024, with a potential deficit emerging only by Q3 2024. In the most likely scenario, oil prices are expected to remain above $80/bbl and may approach $90/bbl by Q3 2024, as per the energy data firm’s projections.
