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19 November 2024

OPEC Plus Faces Pressure Amid Weak Oil Demand

China's economic slowdown raises doubts about global oil recovery as OPEC+ deliberates production adjustments

OPEC+, the coalition of major oil-producing nations, is facing significant challenges as global oil demand continues to falter. This situation has led analysts to speculate whether the organization may have to rethink its plans for increasing oil production. Currently, there are serious doubts about whether the market can absorb the planned output increases announced for October, especially with weakening demand, particularly from China, and concerns about economic stability.

Recent meetings among OPEC+ officials highlight the coalition's hesitance to follow through with originally planned production increases. At these meetings, delegates reiterated their goal to begin gradually easing production cuts, but they also emphasized the need to pause or reverse these increases based on market conditions. The Joint Ministerial Monitoring Committee expressed its cautious stance, effectively indicating they remain on high alert when it concerns international demand fluctuations.

Analysts observed discrepancies between OPEC's optimistic forecasts for oil demand and the more muted expectations from the International Energy Agency (IEA). Recent reports from OPEC proposed demand growth figures around 2.2 million barrels per day (bpd) for 2024, contrasting sharply with IEA's substantially lower estimates. This wide gap raises questions about whether such production adjustments are premature.

One of the major factors contributing to the unpredictability of oil demand is China's economic slowdown. The country's overall oil demand has significantly weakened, with crude imports falling due to sluggish growth and lower requirements for petroleum products such as gasoline and diesel. While OPEC maintains its forecast for demand recovery, many industry specialists are skeptical. They contend on-demand growth needs to pick up speed significantly to enable OPEC+ to incorporate more supply without triggering price drops.

Adding to the complexity of the situation, other major oil corporations share different outlooks on demand recovery. For example, Saudi Aramco, the world's leading oil producer, has echoed sentiments more closely aligned with OPEC's optimistic projections. The chief executive officer of Aramco, Amin Nasser, recently projected demand could rise by between 1.6 million to 2 million bpd during the latter half of the year. Nasser pointed out the market's recent selloff, emphasizing it doesn't accurately reflect the underlying fundamentals of supply and demand.

Meanwhile, other regions, particularly the U.S., have also witnessed fluctuations impacting oil demand. Analysts note consistent changes within U.S. oil market dynamics and how they might influence global pricing. A lack of predictable growth domestically can create ripple effects through the global demand structure.

Although the sentiment from OPEC+ appears to be one of cautious optimism, the volatility evident within the oil markets paints uncertainty. Concerns surrounding recession fears, particularly within the United States, loom large on the oil frontier. Analysts warn should these trends persist, it is plausible OPEC+ may delay production increases or even scale back existing production levels.

On the technological front, advancements within extractive methodologies continue to influence international oil markets. Increased efficiency within U.S. shale plays can momentarily bolster supply to contradictively support rising prices even as overall demand falters. This scenario potentially offers the U.S. some leverage against more traditional producers like OPEC members.

Overall, as we advance toward the fourth quarter of this year, OPEC+ finds itself at a pivotal crossroads. Should the anticipated demand growth fail to materialize, the organization may face contentious internal discussions around the best strategies to either sustain or recalibrate production adjustments effectively. The stakes remain high, and all eyes will be focused on how oil-producing nations navigate this precarious balance of supply and demand.

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