Anticipation of OPEC+ decisions regarding the level of oil production in the first quarter of 2024 has worried traders over the past couple of weeks.
The first surprise was the postponement of the cartel summit from Sunday, November 26, to the last day of autumn. There are rumors in the market that Saudi Arabia is promoting the idea of reducing overall production, but some African countries are resisting this.
Already on November 27, as a base option, the market considered the unchanged total production and the extension of the voluntary reduction in oil supplies to the world market by Saudi Arabia and Russia.
However, already on November 29 there was talk that a consensus had been reached to reduce production.
The next day, some Western media wrote with full confidence that OPEC+ countries would reduce production by more than 1 million barrels per day.
The cartel’s official press release poured cold water on the traders’ heads, stating that the cartel member countries “confirmed their commitment to previously adopted agreements.” This means that production quotas remained the same, set on June 4, 2023. Small changes that did not at all affect the global market affected the production levels of Angola, Congo and Nigeria.
Literally a few minutes after the announcement of the OPEC+ verdict, news began to appear on news agencies that some countries had decided to voluntarily reduce production.
Saudi Arabia did not present any surprises, expectedly extending its voluntary reduction of 1 million barrels per day until the end of the first quarter of 2024, in addition to the 500 thousand b/d reduction announced back in April. Thus, the kingdom will still produce 9 million bpd. The reduced volumes will gradually return depending on the market situation.
But Russia has pleased those who are waiting for expensive oil. As the press service of the Russian government reported with reference to relevant Deputy Prime Minister of the Russian Federation Alexander Novak, Russia will add another 200 thousand b/d of fuel in the first quarter to a voluntary reduction in the export of oil and petroleum products in the amount of 300 thousand b/d in order to reach 500 thousand b/s
“This reduction will be calculated based on the average level of exports for May and June 2023 and will amount to 300 thousand barrels per day of oil and 200 thousand barrels per day of petroleum products,” the statement said.
It is worth adding that due to the sharp increase in domestic fuel prices in Russia, on September 21, a ban was introduced on the export of gasoline and diesel fuel from the Russian Federation. Exports of gasoline were allowed again on November 17, and summer diesel fuel last week. It is possible that Russia’s decision to reduce the supply of petroleum products to the foreign market by 200 thousand bpd indicates that the authorities may continue to limit fuel exports to saturate the domestic market.
Quite unexpectedly, the initiative of the two largest members of the oil cartel was supported by other large oil producers.
Thus, the United Arab Emirates will reduce oil production in the first quarter of 2024 by another 163 thousand bpd in addition to the current 144 thousand bpd.
Iraq will reduce production by 211 thousand, Kuwait - by 135 thousand, Kazakhstan - by 82 thousand, Algeria - by 51 thousand, Oman - by 42 thousand barrels per day.
Based on this, we can clearly conclude that the reduction in production was supported by the majority of participants in the oil cartel. But, probably, some countries could not be convinced of the need to prevent the price of “black gold” from falling, so formally the OPEC+ summit decided to remain within the framework of previous agreements.
As Russian Deputy Prime Minister Alexander Novak said in an interview with the Rossiya 24 TV channel following the OPEC+ meeting, the total voluntary reduction in production from the approved volume in the first quarter of 2024 will amount to 2.2 million bpd; it is necessary to achieve a balance in the oil industry. market during a seasonal decline in demand. “The decisions taken are primarily aimed at removing risks to overcome the period of low demand,” the Deputy Prime Minister said.
Taking into account the fact that Russia will reduce supplies to the world market not of oil, but of finished fuel, we can say that the expectations of the oil market have been justified, and the additional reduction will be in the region of 1 million bpd .
Another surprise at the summit was Brazil’s intention to join the OPEC+ agreement from January 2024, Interfax reported, citing a source in one of the alliance delegations. “Currently, Brazil produces about 3.7 million bpd per day" but is actively increasing production.
Oil has been trading very volatile in recent days. But when there were suggestions that the cartel would reduce production by another 1 million bpd, an upward trend emerged, which ended with a collapse in quotations from $84 to $80 per barrel after the publication of the cartel’s verdict.
Attempts to rebound were not particularly successful, and trading in oil futures on November 29 ended around $80.5 per barrel.
This market reaction could be explained by the fact that speculators trading on the exchanges decided to fix their profits by selling previously purchased oil contracts. But on the morning of December 1, oil still does not want to rise.
Economist at CentroCredit Bank Evgeny Suvorov believes that “the reason for the weakness of the oil market is the rapid growth of production in countries not participating in the agreement, primarily in the USA and Iran.”
Indeed, over the past 4 weeks, average daily oil production in the United States was 13.2 million b/d, while in August the figure was 13.05 million b/d, and last year the average production was 11.91 million b/d .
“Yesterday’s decision by the oil cartel may only prevent a stronger drop in oil prices. For now, the corridor of 77-84 dollars per barrel remains relevant for oil,” Alexey Antonov, head of the investment consulting department at Alor Broker, comments on the situation on the oil market.