S&P Global: Challenging year ahead for OPEC+

Oct. 3, 2023
Production cuts from Saudi Arabia and Russia tightened the global oil balance and the headwind of increasing interest rates is subsiding, but challenges will not ease for OPEC+ in 2024, according to a report by S&P Global Commodity Insights.

Saudi Arabia and Russia's production cuts successfully tightened the global oil balance and shifted speculators towards a more optimistic outlook. The headwind of increasing interest rates, which had previously diminished the attractiveness of oil futures investments, is also subsiding, with rate hikes occurring less frequently and with less severity. However, challenges will not ease for OPEC+ in 2024, according to a report by S&P Global Commodity Insights.

“The jump in oil prices over $90/bbl has not come without costs for OPEC+. A year ago, Saudi Arabia was producing 11 million b/d. Now it is producing 9 million b/d. However, since June oil prices are up about $20/bbl in terms of monthly average prices. But their work is not over,” said Jim Burkhard, vice-president and head of research for oil markets, energy, and mobility, S&P Global Commodity Insights.

“OPEC+ leaders need to remain committed to supply restraint—and keep output near current levels over the next year—to keep oil inventories generally low and prices high. Keep in mind that OPEC+ supply restraint is a necessary condition but not unilaterally sufficient. There may be times when more cuts are needed if the goal is to support prices above $80/bbl,” he said.

The difficulty or ease that OPEC+ faces in terms of supporting the oil market is shaped by two variables: world oil demand growth and the change in oil production outside of OPEC+. Conditions are most suitable for OPEC+ when demand growth is stronger than supply growth outside of OPEC+. This was most clearly demonstrated in 2021. By 2023, however, the picture changed as production gains outside of OPEC+ exceeded demand growth, according to S&P Global. OPEC+ had to cut production to prevent rising oil inventories and reverse a 12-month decline in oil prices that occurred from June 2022 to June 2023. On this point OPEC+ has succeeded, said Burkhard.

For 2024, S&P Global Commodity Insights expects world oil demand (liquids) growth of 1.6 million b/d, of which 1.1 million b/d is for refined products. Liquids production growth outside of OPEC+ will be 2 million b/d, of which 1.5 million b/d is crude oil and condensate.

“Largely due to the impact of China’s re-opening and ongoing normalization of jet fuel demand, world oil (total liquids) demand growth of 2.1 and 1.6 million b/d in 2023 and 2024, respectively, is stronger than economic growth alone would support. These demand gains are at or above the typical annual gain of 1.6 million b/d from 2010 to 2019,” Burkhard said.

Supply outside OPEC+

Oil supply growth in the US has been a prominent factor in energy markets over the past 15 years, and this trend continues in the current year. Total US liquids production will average 21.6 million b/d—about 20% of world liquids supply (combined Russian and Saudi liquids production is 22.9 million b/d this year). Included in the US total liquids number is 1 million b/d of crude and condensate growth. By end-2023, US crude and condensate output will hit an all-time high of 13.2 million b/d.

“But the story changes in 2024. The US will not be the largest source of growth in global crude oil production. Its neighbor to the north—Canada—will take the lead with an increase of 500,000 b/d while the US grows by 400,000 b/d,” Burkhard said.

However, there are risks to the Canadian outlook. The timing of the Trans Mountain pipeline expansion opening is one, although one hurdle was overcome recently as a route deviation gained approval. If the pipeline were to be delayed beyond first- or early second-quarter 2024, the result could be deeper price differentials for western Canadian crude and put more oil in storage, Burkhard said. Wildfires can also impact output, he continued.

Latin America is also an important source of supply gains. Guyana and Brazil will lead a 400,000 b/d gain from Latin America in 2024.

In sum, OPEC+ faces another year in which production will need to decline on an annual average basis by about 500,000 b/d to support market objectives. Even that reduction leads to an implied 300,000 b/d total liquids surplus for the year, according to the report.


Geopolitics could impact the oil market over the coming year.

“The Biden administration is attempting to orchestrate a monumental deal involving Saudi Arabia, Israel and the US. While oil is not at the center of the talks, it cannot be ignored. A treaty, which would have to be approved by the US Senate, faces challenges if Saudi Arabia is perceived as responsible for raising gasoline prices for Americans. On the other hand, it could loosen supply restraint in time for the November 2024 US presidential election,” Burkhard said.

“Saudi Arabia is not the only Gulf country where the Biden Administration has been active on the diplomatic front. The increase in Iranian oil production will be sustained due to the thaw in US-Iranian relations and the Biden Administration’s desire for more oil to be on the global market. Evidence is the breakthrough on Sept. 18 that saw 10 prisoners exchanged between the US and Iran and the unfreezing of $6 billion of Iranian cash. But the rapprochement is fragile,” he continued.

On the Russian front, S&P Global Commodity Insights expects that sanctions will not hinder the flow of Russian oil to the world market. If Russian oil is hindered on its path to the global market, it will be at the direction of the Russian government as was the case in September with a temporary ban on the export of diesel and gasoline.