The Organization of the Petroleum Exporting Countries and allies are expected to extend its voluntary production cuts beyond December, analysts at UBS were quoted in a report by Reuters. This comes ahead of the cartel’s December 1 ministerial meeting where the group will decide output policy going forward. There have been concerns that crude oil prices may come under more pressure if OPEC+ decides to turn on the taps from January. In October, the cartel had agreed to extend its steep voluntary production by eight members from the OPEC+ group till the end of December. Eight members of the OPEC+ group, including Saudi Arabia and Russia, have been adhering to 2.2 million barrels of voluntary production cuts since the beginning of this year. The voluntary output cuts were set to expire at the end of November, and the cartel were scheduled to increase production by 180 million barrels per day. However, lower demand and concerns over a surplus in the market prompted OPEC to extend these cuts by another month till the end of December. (Click on image to enlarge)
Source: ANZ Research Market dynamics not conducive for production increaseAnalysts at UBS noted that current market conditions were not conducive to a production increase from January. UBS analysts indicated that OPEC+ will likely extend its voluntary production cuts by another three months till the end of March 2025. UBS analysts argue this cautious approach provides the alliance flexibility to adjust production in response to unexpected disruptions or stronger-than-anticipated demand later in the year, according to the Reuters report. According to the International Energy Agency (IEA), even if OPEC+ agrees to extend its production cuts, there would still be a considerable oversupply in the market. IEA said earlier this month that production from non-OPEC+ countries is expected to increase by 1.5 million barrels per day next year. This would be more than enough to counter growth in global oil demand in 2025.According to the Paris-based agency’s estimates, oil demand is expected to grow by less than 1 million barrels per day next year. Oil prices may fall if OPEC increases outputUBS analysts said if OPEC+ increases output from January, Brent crude oil prices could fall below $70 per barrel, depending on how the increase is perceived by traders. The agency believes that efforts by Kazakhstan and Iraq to address overproduction in earlier months of 2024 play a significant factor in supporting OPEC’s cautious approach if it decides to extend the cuts. Even though Saudi Arabia had recently hinted that it would prefer to regain lost market share over higher prices, UBS does not share the view.It highlighted OPEC’s historical preference for stability over chasing market shares. According to the agency, Brent prices are expected to remain around $75 per barrel, supported by OPEC+ policies. ANZ Research said:
Any further delay in OPEC’s plan to phase out its voluntary production agreements beyond December will be crucial for the market
Demand woesThe oversupply in the oil market has been exacerbated by poor demand growth around the world, especially in China. China is the top importer of crude oil.However, in the past few months, imports have fallen from the country, indicating lower demand growth. Analysts at Vortexa said that demand for oil is expected to remain at current levels in China.For 2025, the analysts do not see much of a growth from the world’s second biggest economy. China has been struggling with its economy and the increasing fleet of electric vehicles in the country mean that demand for oil is on its way down. At the time of writing, the price of Brent crude on the Intercontinental Exchange was at $74.41 per barrel, down 0.3% from the previous close.More By This Author:Japan’s Inflation Struggle: How New Stimulus Measures May Shape The Economy Solana Price Prediction: Here’s Why SOL Token Will Hit $8,000 Dow Jones, S&P 500 Rise On Strong US Manufacturing Data; Gap Jumps 15%, While Alphabet And Nvidia Slide
