OPEC holds firm on strong oil demand expectations, despite crude price slump

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POLAND - 2020/03/19: In this photo illustration an OPEC logo seen displayed on a smartphone with a World map of COVID 19 epidemic on the background. (Photo Illustration by Omar Marques/SOPA Images/LightRocket via Getty Images)

OPEC remains bullish on 2024 oil market fundamentals despite global economic uncertainty, supply growth from outside the group and a recent fall in oil prices, which it blames on speculators.

In its latest market outlook released Dec. 13, the producer bloc forecast that global oil demand growth would continue to outpace increases in supply from non-OPEC producers, tightening the market as it enacts its next tranche of aggressive output cuts. It said it was “cautiously optimistic” about market fundamentals going forward, with economic growth stronger than expected through the first three quarters of 2023.

OPEC continues to see the so-called “call” on its crude — the amount the bloc would have to pump to balance global supply with demand — well above its current output. It estimated the Q1 2024 call on its crude at 29.68 million b/d, almost 2 million b/d higher than its November production of 27.84 million b/d, which was down 57,000 b/d on the month, according to secondary sources used by the organization to monitor output.

OPEC crude production should fall further in the coming months, with several members of the group and its allies, including Russia, committing at its Nov. 30 meeting to some 700,000 b/d of deeper production cuts, in an attempt to reverse the market’s bearish tide.

Though challenges still lurk, including the risk of recessions in major consuming countries, OPEC said its report there was “some upside potential” to the global economic outlook, “driven by accommodative monetary policies and a more favorable geopolitical landscape.”

This is despite crude prices recently hitting six-month lows, with analysts citing demand headwinds in China and growing production from the US and other key regions. Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $74.09/b on Dec. 13, with the benchmark in recent days hitting its lowest levels since late June.

The slump is largely the work of speculators, OPEC said in the report.

“The market dynamic was fuelled by exaggerated concerns about oil demand growth, which negatively impacted market sentiment,” OPEC stated.

US growth

OPEC said that oil demand will be supported by resilient global GDP growth, amid continued improvements in economic activity in China and growth in OECD Americas.

But the bloc is grappling with growing production outside the group. It said in its report that it is maintaining its forecasts for non-OPEC supply growth at 1.8 million b/d in 2023, and 1.4 million b/d in 2024. This comes after upward revisions earlier in 2023.

OPEC sees the US accounting for around 70% of this expansion in 2023, with American liquids production expected to increase by 1.3 million b/d year on year.

Other producers that are contributing to growing supply outside of OPEC include Brazil, Kazakhstan, Norway, Guyana, Mexico and China.

OPEC said that non-OPEC upstream investment was up 11% on the year at around $487 billion in 2023, but this is expected to fall to $482 billion in 2024.

OPEC estimated OECD commercial oil stocks at 2.818 billion barrels as of September — down 12.8 million barrels from the September, and 66 million barrels below the latest five-year average. This included an 11-million-barrel increase in crude stocks, and a 23.8 million barrel fall in product stocks.

Source: Platts

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