Opec+ controls only half of the global oil production, as demand growth has slowed “dramatically” and US output is at new highs.
According to the International Energy Agency, recent production cuts made to support the oil price have reduced Opec+’s market share to only 51 percent — the lowest level since the expanded cartel formed in 2016.
Despite the production cuts, oil prices have remained below $75 a barrel, compared to nearly $100 in Sept. The IEA has noted that “global demand growth will be drastically slowed” in the current third.
It cited macroeconomic factors, such as higher interest rate and a “fading recovery from Covid-induced Lows”, to say that demand for the third quarter would be nearly 400,000 barrels per day lower than what it had predicted just a month ago.
The watchdog said that Opec+’s influence on the market may continue to wane next year because non-members will be able to produce enough oil to meet all of the global demand growth forecasted for 2024.
The report noted that the record US supply and the rising output of producers like Guyana and Brazil will increase the oil supplied by non Opec countries by 1.2mn B/d by 2024, more than the forecasted 1.1mn B/d growth in demand.
Over the last 14 months, the cartel — made up of Opec member countries as well as Russia Mexico and Azerbaijan – has announced several rounds supply cuts. The cartel’s efforts to keep prices above $80 per barrel were hampered by the production of non-members.
According to the IEA, the US, with its current production of 20mn b/d will continue to be the main source for supply growth in the coming year.
The IEA stated that “the continued increase in production and the slowing growth of demand will complicate efforts made by key producers to maintain their market share and high oil prices.”
The IEA expects the growth in oil demand to fall from 2.8mn b/d year-on-year in the third quarter 2023 to 1.9mn b/d this quarter.
The previous forecast had predicted that the demand growth for this quarter would be around 2.3mn B/D.
Watchdog said that over half of the revision was due to a weaker demand for goods in Europe “where unprecedented rates hikes are working through an already stagnant industry in 2022-23”.
In a sign of how deep the recession is, the agency has also predicted a weaker demand in the Middle East and Russia.
It expects the global oil demand in 2024 to rise by 130,000 barrels per day more than originally projected, and that “a soft landing” is “coming into sight” in the US.
In this scenario, the US Federal Reserve could bring inflation back to its target of 2 percent without putting the largest economy in the world into recession.