Production Predicament
As we edge closer to 2024, oil markets have increasingly begun to question what OPEC’s strategy for next year might look like. Under the current arrangement, production is due to rise by 2.375mbd in January if all producers chose to utilize their quotas. Few market participants expect the taps to be turned on come January, but noises are being made within the producer group about next year’s volumes, with the decision to postpone this Sunday’s meeting adding further downwards pressure on oil prices.
The main OPEC producers (OPEC 10) have a total 2024 target of 24,994mbd, against October production of 22,619mbd (according to OPEC sources). However, within this quota, some countries are seeking even higher allowances. Although both Angola and Nigeria have faced challenges over the past few years and have rarely threatened to exceed their quotas, Nigeria is gradually edging production upwards and recently produced above next year’s allowance of 1.380mbd, whilst Angola also has its own ambitions. Indeed, earlier this year it was agreed that its quotas for Nigeria, Angola and Congo might be assessed higher for 2024, subject to review by outside analysts.
In the Middle East, the UAE set out an ambition of boosting oil production to 5mbd by 2025. Under its 2024 quota the country has scope to increase exports to 3.2mbd next year, up from 2.94mbd in October. Whilst 5mbd is unlikely to be achievable in the short term, the country has spare capacity to boost production to around 4mbd and may seek to exploit its resources further. Saudi Arabia, the stalwart of OPEC has continued to lead by example but could also be the biggest source of supply growth next year. Current production sits around 1.5mbd below next year’s quota.
The group may also have to consider how to bring Venezuela back into the fold. It is currently too soon to consider any targets on the Bolivarian Republic’s output, but any increases from the State will need to be considered in a broader context. Additional consideration needs to be given to OPEC+ members, of which Russia is the largest producer. Likewise, Iran, which seems unlikely to get sanctions relief anytime soon, appears to be boosting exports, whilst non-OPEC supply is also expected to expand next year by 1.3mbd.
Much depends on what level of production that demand growth can absorb. OPEC remains bullish for 2024 consumption, which it expects to expand by 2.25mbd. However, in contrast, the IEA expects growth to slow to just 920kbd next year. The challenge for OPEC therefore is how much oil can the group bring back into the market to manage the ambitions of individual members, whilst also keeping prices within an acceptable range? Ultimately the global economy may decide for them.
OPEC Production vs Quotas (mbd)
Data source: Gibson Shipbrokers