VIENNA/ABU DHABI: Eight members of the OPEC+ group of oil-producing nations said on Sunday they were extending supply cuts until the end of December. The move is aimed at boosting oil prices amid uncertain demand and accelerating supply, with an eye on the imminent US presidential election, though analysts predict a limited impact. The eight countries "have agreed to extend the November 2023 voluntary production adjustments of 2.2 million barrels per day for one month until the end of December 2024”, the Vienna-based Organization of the Petroleum Exporting Countries said in a statement.
The eight from the 22-member group extending the cuts are leaders Saudi Arabia and Russia, as well as Algeria, Iraq, Kazakhstan, Kuwait, Oman and the United Arab Emirates. They have been delaying production increases amid concerns over slowing demand, which has weighed on oil prices in recent months. Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said the announcement was "the logical next step of the persistent downside pressure on oil prices due to sluggish Chinese and weakening global demand outlook, and ample non-OPEC supply”.
But any boost to oil prices would "unlikely” last unless OPEC+ "takes further measures to restrict production”, Ozkardeskaya told AFP. And even then, "their restriction strategy hasn’t led to a sustainable rise of oil prices,” she said, adding the grouping now accounted for less than half of the global oil output. Jorge Leon, an analyst with Rystad Energy, said OPEC+ was awaiting the results of the November 5 US presidential election, which "will have a significant impact on the oil market”.
"I am not so sure who would OPEC prefer but a trade war would mean lower demand,” Leon told AFP, adding a trade war was "likely” if Republican Donald Trump wins. OPEC+ ministers are due to meet in early December in Vienna at the group’s headquarters, but with Sunday’s announcement, the eight countries have already decided not to reopen the taps until at least early 2025. During the last ministerial meeting in June, OPEC+ had still announced they wanted to increase their production from October, though it has stressed that this decision could be reviewed at any time.
Bullish on demand
The Organization of Petroleum Exporting Countries (OPEC) is very positive on demand for oil in both the short and long term, Secretary General Haitham Al-Ghais said at an energy industry event in Abu Dhabi on Monday. "There are some challenges, but the picture is not as negative as some make it sound,” he said, adding that so-called peak demand would not happen while the global economy continues to grow. Ghais said the oil producer group was upbeat on the global economy, noting growth in the US and in China, adding that 5 percent growth is still very good for a country of China’s size, even if it achieved up to 10 percent in previous years.
He also reiterated his view that demand will not peak any time soon. "It reminds me of all the talk on peak supply many years ago. Peak supply never happened and peak demand won’t happen as the world keeps growing,” he said. OPEC expects demand to keep growing for a longer period than forecast by the likes of the International Energy Agency, which expects oil use to peak this decade.
OPEC and its allies, known collectively as OPEC+, have been cutting supply to support the market. Ghais was speaking a day after the group said it had agreed to delay a planned December increase to oil output by one month, citing downward pressure on the oil market from weak demand and rising supply outside the group.
OPEC+ oil supply cuts and recent efforts to unwind them have increased volatility in energy markets and hampered investment in new production, the CEO of Italian energy company Eni said on Monday. Speaking at an industry event in Abu Dhabi, Claudio Descalzi said he expected high volatility in the energy markets experienced in recent years to extend into 2025. Eight members of OPEC+, which groups the Organization of the Petroleum Exporting Countries plus Russia and other allies, agreed on Sunday to delay a planned December oil output increase by one month due to weak demand in China and rising supplies. Oil prices were up by over 2.8 percent by 1216 GMT on Monday.
"As soon as (OPEC) say we’re going to release some production, the price went down immediately. Now they say we postpone until the end of the year, and that has made a big impact on the market... the volatile situation is not good,” Descalzi said. "Everybody says we need energy, but with this kind of volatile situation, and this volatility is not really helping investment” in new oil and gas production, he said. BP CEO Murray Auchincloss as well as Shell CEO Wael Sawan told the panel that tensions in the Middle East topped the risks facing energy markets.
Escalating tensions between the Zionist entity and Iran since last October have stoked concerns over supply disruptions in the Gulf, which produces and exports around 20 percent of the world’s oil and gas, pushing oil prices higher. Turning to the upcoming US presidential elections, Auchincloss said that the biggest challenge the United States faces is regulatory reform to allow permits for new investments in energy, particularly renewables and low-carbon projects. Auchincloss also said that the world would require a lot of new investment in oil and gas in order to maintain supplies, regardless of a possible settling of demand in the coming years. — Agencies