London, Nov 30 – The OPEC oil cartel, led by Saudi Arabia, and allied producers, including Russia, are facing difficulties in reaching a consensus on cuts to oil production as prices continue to tumble. Despite their efforts to stabilize prices, recent setbacks have hindered their progress.
The decline in oil prices has been a positive development for U.S. drivers, who have been benefiting from lower gas prices in recent months. However, the situation is concerning for OPEC+ countries whose economies heavily rely on oil revenues. These nations are struggling to agree on production cuts amidst ongoing discussions. The meeting, originally scheduled for Sunday, has been postponed by four days, indicating the challenges in reaching a new agreement.
Analysts believe that despite the obstacles, OPEC+ will eventually reach a decision to reduce production. Jorge Leon, Senior Vice President of Oil Market Research for Rystad Energy, stated, Every member country acknowledges the need to reduce output to support prices into 2024.
The main challenge lies in determining how the production cuts will be distributed among the 23 member countries, some of which have already accepted lower production targets at the previous OPEC+ meeting in June.
There is also uncertainty surrounding whether Saudi Arabia and Russia will extend their additional voluntary cuts of 1 million barrels per day and 500,000 barrels per day, respectively, beyond this year into 2024. Russia is seeking higher oil revenue in the face of Western sanctions while allocating energy earnings for its conflict with Ukraine. On the other hand, Saudi Arabia needs to earn approximately $86 per barrel to fulfill its planned spending goals, according to the International Monetary Fund.
Saudi Arabia is currently focused on funding an ambitious economic overhaul, reducing its dependence on oil, and creating employment opportunities for its young population. However, the international benchmark Brent crude has remained in the low- to mid-$80 range, reflecting concerns about oversupply in a weakening global economy. This factor could negatively impact the demand for oil in travel and industry sectors.
As of Thursday, Brent crude rose by 8 cents to $82.96 a barrel, while U.S. crude increased by 11 cents to $77.97 a barrel in electronic trading on the New York Mercantile Exchange.
The decline in oil prices has resulted in lower gas prices in the United States since September. The average price for gasoline is currently just below $3.25 per gallon, representing a 7% decrease from a month ago. However, these prices remain higher compared to January 2021, when President Joe Biden assumed office, with an average of $2.40 per gallon. High inflation has become a political challenge for President Biden as he approaches the 2024 election. In response, he emphasized the need to address supply chain issues and reduce price pressures.
When asked about the possibility of OPEC+ reducing oil production, White House national security spokesman John Kirby focused on President Biden’s objective of balancing the global market and reducing gasoline prices in the United States.
U.S. oil production has reached record levels while OPEC+ has scaled back its output. The International Energy Agency noted in its November oil report that countries outside of the OPEC+ coalition are expected to drive global growth in oil supply next year. In August, daily production in the United States averaged 13 million barrels, an increase of over 1 million barrels compared to the previous year, according to the U.S. Energy Information Administration.
There is a growing risk that Saudi Arabia’s production cuts could diminish OPEC’s influence over oil supplies as other countries ramp up their output. Jorge Leon stated, The kingdom is balancing the desire to keep prices high by limiting supply with the knowledge that doing so will lead to a further drop in overall market share.
Concerns that the conflict between Israel and Hamas could disrupt oil supplies in the region have so far not materialized. The IEA emphasized that there has been no material impact on oil supply flows from the war.
In conclusion, OPEC+ suppliers are facing challenges in reaching an agreement on cuts to oil production despite efforts to stabilize prices. The struggle lies in determining the distribution of production cuts among member countries, as well as deciding whether Saudi Arabia and Russia will extend their voluntary reductions. The decline in oil prices has been beneficial for U.S. drivers but detrimental to OPEC+ countries heavily reliant on oil revenues. The outcome of the meeting and the subsequent decisions made by OPEC+ will have significant implications for the global oil market and economies worldwide.
