OPEC+ Delays Production Restoration Amid Weak Oil Demand
- OPEC+ has delayed the planned increase in oil production from October to December due to weak demand.
- The International Energy Agency and U.S. Energy Information Administration have revised their oil demand growth forecasts downward.
- The combination of soft demand and strong non-OPEC supply has led to a drop in oil prices, challenging OPEC+'s production strategy.
The OPEC+ cartel has decided to postpone the restoration of oil production cuts that were initially implemented to stabilize prices. Originally scheduled to increase output in October, the group now plans to begin unwinding these cuts in December. However, the market's ability to absorb additional OPEC+ barrels remains uncertain due to strong supply from non-OPEC producers, particularly the United States, Brazil, Guyana, and Canada. Currently, OPEC+ is withholding approximately 5.9 million barrels per day (b/d) from the market, with an additional 3.7 million b/d of cuts locked in until the end of 2025. The primary challenge facing OPEC+ is weaker-than-expected oil demand, which has led to a reassessment of growth forecasts. The International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) have adjusted their projections for demand growth, with the IEA now estimating a rise of only 900,000 b/d in 2024, significantly lower than previous expectations. This decline is attributed to a broader economic slowdown in China, which is expected to contribute only 180,000 b/d of demand growth next year, down from earlier estimates. In addition to the challenges posed by demand, non-OPEC supply is expected to grow robustly, further complicating OPEC+'s situation. The IEA forecasts that non-OPEC production will increase by 1.5 million b/d this year and next, contributing to a decline in oil prices, which have recently dropped to around $70 a barrel. The fiscal breakeven prices for most OPEC members are significantly higher, creating pressure on the cartel to manage its production cuts effectively. As global oil inventories are projected to decrease, the EIA anticipates a rise in Brent prices to an average of $82 per barrel in December and $83 per barrel in the first quarter of 2025. The ability of OPEC+ to navigate these market conditions and adjust its supply strategy will be critical in the coming months, as the balance between demand and supply remains precarious.