MW What will OPEC+ decide on oil output? Here's why it's complicated.
By Myra P. Saefong
If OPEC+ output increases as planned, oil prices could drop as low as $40 a barrel by March, S&P Global analyst says
Middle East politics and worries about the prospects for global demand have fueled volatile trading in the oil market in recent weeks and that makes an upcoming decision by major oil producing countries in the OPEC+ group even more complicated.
Despite the Hamas attack on Israel a year ago, oil prices are lower this year even as wars in the Middle East still have the potential to disrupt supplies.
On Friday, global benchmark Brent crude for January delivery (BRN00) (BRNF25) settled at $73.10 a barrel on ICE Futures Europe, up 29 cents, or 0.4%. Based on the front month, Brent prices were down 5.1% year to date. U.S. benchmark December West Texas Intermediate crude added 23 cents, or 0.3%, at $69.49 on the New York Mercantile Exchange, down 3.2% for the year.
Economic growth still supports prices in the oil market but market sentiment, is "not picking up" on that, Kang Wu, global head of oil demand research at S&P Global Commodity Insights told MarketWatch in an interview Friday.
Currently, global oil and petroleum liquids demand is expected to stay above global production with shortfalls filled up by inventory draw, he said.
The overall balance the market sees in supply and demand at the moment, however, may soon end, Wu said. Supplies will rise because demand growth will be "diminishing."
The state of the economy plays a role but global demand could fall by anywhere between 2 million to 3.5 million barrels per day during its usual seasonal slowdown between now and January 2025, he said.
Meanwhile, under his base case scenario, Wu sees more oil becoming available starting from the end of this year, and that may prevent OPEC+ from carrying out its full plan to increase production without pushing down oil prices significantly.
"We don't predict how they will make their decisions specifically," he said, but the group's options include postponing its 2.5 million-barrel per day production increase beyond the Dec. 1 start date. That figure takes into account an additional production quota of 300,000 barrels per day for United Arab Emirates starting January 2025, he said.
In September, OPEC+ said it would extend voluntary production cuts of 2.2 million barrels per day to the end of November, and would gradually phase out these cuts on a monthly basis starting Dec. 1. The group's next committee meeting and full ministerial gathering are also scheduled for Dec. 1.
OPEC+ also has the option to increase production at a "much lower allocation," Wu said.
If OPEC+ phases in the amount of oil output it currently plans, oil prices are likely to drop to as low as some $40 a barrel in March.Kang Wu, S&P Global Commodity Insights
If OPEC+ phases in the amount it currently plans, oil prices are likely to drop well below the base-case forecast from S&P Global Commodity Insights, to as low as some $40 a barrel in March, said Wu.
There's still the possibility of disruption in supplies from Iran or other countries, and if that were to happen, oil prices could spike to more than $95 a barrel but in terms of likelihood, "downward pressure is higher," he said.
S&P Global Commodity Insights forecasts an average Brent price of slightly above $70 a barrel for next year if OPEC+ lowers the allocation of the production increase to 1 million barrels per day point to point, instead of going forward with its plans for a 2.5 million-barrel rise, said Wu.
-Myra P. Saefong
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(END) Dow Jones Newswires
November 02, 2024 07:35 ET (11:35 GMT)
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