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OPEC+ Output Cuts May Have No Effect Unless Extended Further

Analysts and traders surveyed by Reuters on Monday indicated that OPEC+ 2.2 million barrel-per-day production cuts in the first-quarter of the New Year will be counterbalanced by a potential supply surplus, signaling a bearish outlook for oil prices. 

OPEC+ output cut announcements resulting from a November 30 meeting failed to move the needle on oil prices, prompting the Saudi Energy Minister to criticize commentators for failing to understand the deal. It also prompted an urgent trip for Russian President Vladimir Putin to Saudi Arabia, and a flurry of speculation that the cartel has lost its ability to move the market due to increased U.S. output. 

Both Saudi Arabia and Russia have indicated that cuts may be extended beyond the first quarter of 2024; however, this has done little to assuage analyst concerns over what amounts to a short, three-month voluntary output cut agreement. 

"I don't think a three-month cut is long enough to make a meaningful difference in terms of physical supply even if everyone stuck to it," Surrey Clean Energy director Adi Imsirovic told Reuters on Monday.

Analysts from both Macquarie and Investic echoed this sentiment in statements to Reuters. 

"Unfortunately, we won't have an idea of January output until the end of that month, and this is a long time in the oil market," Investic’s Callum Macpherson said, adding: "The cuts are only scheduled to last for three months and it can take up to one or two months for cuts to be implemented."

Macquarie also suggested cuts will need to be extended for an effect. 

The Energy Information Administration (EIA) showed that U.S. average daily production in September was unchanged from its record-high rate in August of 13.24 million barrels. In the period from 2014-2016, the Saudis managed to disrupt American shale producers with output cuts that led to oil prices shedding 70%. Now, however, American shale producers have consolidated and are less vulnerable to OPEC output decisions. 

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By Charles Kennedy for Oilprice.com

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  • Mamdouh Salameh on December 11 2023 said:
    OPEC Plus made a huge mistake by agreeing individual voluntary cuts by some of its members during its latest meeting.

    First there was no need whatsoever for the cuts since the market fundamentals are solid and global oil demand is robust

    And second by so doing it confirmed the speculators’ and oil traders’ false claims that oil demand is weak. As expected prices fell down further.

    Moreover, these voluntary cuts may either be diluted or never implemented my member countries thus exerting further pressure on prices.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • George Doolittle on December 11 2023 said:
    Big battery and *"e-fracking."* actually takes an enormous amount of energy to get energy out of the ground but this has all changed first with Mega Wind now Tesla plus Solar. Plus bringing all of these huge fields back to life now sustainable. Glad the Middle East has oil! Still...talking one trick ponies still and hardly alone with that as well. Coal is even crazier there is so much of it especially in the USA dear God. Anyhow the economics of coal in the USA just like oil is really and truly insanely good. Natural gas now too, apparently...and wind energy going on forever now. Plus 2 new nuke plants up and running in Georgia. Long $ibm International Business Machines strong buy

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