OPEC+ faces tough production call as ministers prepare to meet

With crude prices still stuck in the low to mid-$70s/b, OPEC and its allies are set to convene Dec. 1, having already twice postponed their plans to gradually unwind 2.2 million b/d of voluntary production cuts.

A third delay to the tapering, which is currently set to start in January, could be on the cards, with the producer group still facing headwinds of tepid Chinese demand growth and the prospect of further gains in non-OPEC+ output in the new year.

OPEC+ initially planned to meet in Vienna but is now expected to convene online, as tensions continue over some members missing their production targets.

But how long the OPEC+ alliance will be willing to hold firm on its production levels as its market share erodes remains a major question hanging over prices. The bloc may feel inclined to extend its quotas through the end of the first quarter to weather the industry's typical late winter refinery maintenance season, and some analysts have speculated that an additional production cut could be mooted.

Investment bank HSBC said a three-month extension "would allow the group to avoid a potentially large surplus during the seasonally weak first quarter," while Mark Finley, a fellow in energy and global oil at the Baker Institute for Public Policy at Rice University said that a rollover was "the logical choice".

Officially, OPEC remains bullish on oil demand, even though it has cut its forecasts for 2024 and 2025 in each of the last four months. Its latest monthly oil market report released Nov. 12 projects global oil demand to rise 1.82 million b/d in 2024 -- down 430,000 b/d since July's forecast. For 2025, it sees demand increasing another 1.54 million b/d.

The International Energy Agency, however, estimates much lower demand growth -- forecasting 920,000 b/d in 2024 and 990,000 b/d in 2025.

The cloudy outlook for China -- the world's second-largest consumer of oil and a key driver of global economic growth -- continues to put downward pressure on prices.

Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $74.59/b Nov. 26. Some analysts see this as too low for the group to bring barrels back to market.

Analysts with Commodity Insights see Dated Brent prices averaging $72/b in 2025 and $69/b in 2026.

"If prices go above $80/b, that would increase the chances of a production increase, which could make the $80/b range a de facto price ceiling for a time," the analysts said in a recent note.

2025 factors

Whatever policy OPEC+ chooses to pursue, it faces major challenges in curbing output.

Iraq, Kazakhstan and Russia, which overproduced their quotas in 2024, still owe so-called "compensation cuts" to make up for their excess volumes that would carry into 2025.

In the run-up to the meeting, Saudi Arabia and Russia, co-chairs of the OPEC+ alliance, have held meetings with Iraq and Kazakhstan. Participants discussed the importance of OPEC+ in maintaining oil market stability and reiterated their commitment to the agreement.

The UAE -- which also has missed production targets in 2024 -- previously secured a 300,000 b/d increase in its quota to be phased in between January and September, which could increase the group's supply.

Separate to voluntary quotas are groupwide cuts totaling 3.6 million b/d that are in place until the end of 2025.

Other options on the table include deeper cuts -- which may be necessary if the group is to influence a market already factoring in some form of extension.

The group has surprised the market several times at recent meetings with unexpected cuts.

One delegate said they do not see the possibility of a further cut, however.

Kathleen Brooks, research director at broker XTB, said OPEC+ had lost its bite.

"Partly because some of its members ignore its edicts and pump oil anyway, and partly because a win for Donald Trump is likely to see the US produce even more oil, meaning that the world will be awash with oil in 2025, even though demand is expected to remain constrained," she said.

Geopolitical uncertainty is complicating forecasts, which could lead the group to favor continuing with short-term policies.

A peace agreement between Israel and Hezbollah that came into force Nov. 27 indicates some progress toward a relief to fighting in the Middle East, but the situation remains fraught. Further volatility could come from developments in the conflict in Ukraine.

Much depends on the new US administration's policy as President-elect Donald Trump takes office Jan. 20.

Many analysts forecast a shift in sanctions focus from Moscow towards Iran, which has boosted output by more than 600,000 b/d since Russia invaded Ukraine in early 2022, according to the Platts OPEC+ production survey from Commodity Insights, and is exempt from a quota under the OPEC+ agreement.

The market's many shifting barrels will keep OPEC+ ministers on their toes.