Crude price slide sets challenging backdrop for key OPEC+ committee meeting

OPEC and its allies have been hoping that a seasonal bump in oil demand would pave the way for the group to begin unwinding some of its production cuts this autumn, but crude prices have been sliding from their summer highs as a key ministerial monitoring committee prepares to meet Aug. 1.

Appetite among the bloc to ratchet back even more production to tighten global supplies appears low, with some 5.8 million b/d of OPEC+ capacity already idled from various rounds of cuts since October 2022 and many countries chafing at their quotas. At the same time, ministers are also likely wary of upsetting prices further by releasing barrels into the market too soon.

One OPEC+ delegate said the alliance is not happy with current prices.

"However, further cuts are difficult for the members," the delegate said on condition of anonymity. "Production capacities and investments are growing."

On the eve of the Joint Ministerial Monitoring Committee, prices dipped below $80/b for the first time in several weeks. Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $79.14/b on July 30, with concerns over China’s economy and growing non-OPEC+ production weighing on prices. This was the lowest level since June 7, when Dated Brent was assessed at $78.32/b. Prices fell in early June after OPEC+ announced plans to begin gradually rolling back a 2.2 million b/d tranche of its cuts from October, subject to market conditions.

The JMMC, cochaired by Saudi Arabia and Russia, is tasked with assessing the market’s outlook and making recommendations to the wider 22-country alliance, which is next scheduled to meet Dec. 1 in Vienna.

The group will face its common dilemma of choosing whether to defend prices or market share, said Jim Burkhard, Commodity Insights’ vice president of oil markets, energy and mobility, and traders will be carefully parsing the JMMC’s communique for hints of policy direction.

"If increasing production to maintain unity is a priority, they may reaffirm their intent to increase production in October. If current price levels are the top priority, they may emphasize their ongoing supply restraint through September. Or they may try to do both," Burkhard said.

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Compensation cuts

Many forecasts see 2025 crude prices weakening even further as more supply from the US, Brazil, Guyana and Canada come online. Commodity Insights’ analysts project an average Dated Brent price of $84/b in 2024, dropping to $79/b in 2025.

Mark Finley, a fellow in energy and global oil at the Baker Institute for Public Policy at Rice University, said he does not expect the JMMC to make any drastic changes in policy and OPEC+ is unlikely to implement the planned output increases if prices stay at current levels. Any changes in October production levels would need to be decided by early September, when the group’s core Middle East producers will set official selling prices and make allocation decisions to term customers for the month ahead.

"They have another month to see what happens before they really have to decide," Finley said.

Demand dynamics

OPEC+ decision-making is clouded by the divergence in expectations of near-term crude demand.

OPEC itself sees global oil demand rising 2.25 million b/d in 2024 and another 1.85 million b/d in 2025. This is above estimates by other agencies. Commodity Insights estimates oil demand growth at 1.6 million b/d in 2024 and 1.3 million b/d in 2025. The IEA's estimates are much lower, at 970,000 b/d in 2024 and 980,000 b/d in 2025.

OPEC has recently lowered its estimate of demand for OPEC+ crude, however. The call on OPEC+ crude -- the amount that the alliance would need to produce to balance global supply with demand -- will be 43.1 million b/d in 2024 and 43.9 million b/d in 2025, it said in its closely-watched monthly oil market report released July 10. Both estimates were down 100,000 b/d on the previous report. This is well above the 40.8 million b/d that the group pumped in June, according to secondary sources, which was down 125,000 b/d month on month.

Commodity Insights expects non-OPEC+ supply gains to exceed demand growth -- a bearish outlook -- but by a lower margin than it previously forecast. In its latest market report released July 30, it reduced its non-OPEC+ supply growth forecast from the third quarter of 2024 to the end of 2025 by around 520,000 b/d from the June forecast. This was based on estimates of less upstream activity than expected as well as geopolitical and climate concerns in some major growth regions.

Unsteady global economic prospects are also challenging OPEC+ members. A prolonged property sector slump, tepid consumer spending and escalating trade tensions are putting pressure on the Chinese economy.

US policy could balance this. S&P Global Market Intelligence expects a widespread interest rate cut to follow once monetary policy easing starts in the US, supporting households and businesses globally and hence oil demand.

At the OPEC+ alliance’s last meeting, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said the group has been keenly watching for central banks to lower interest rates to stimulate economic activity.

"We are waiting for interest rates to come down, a better trajectory of economic growth, not just in some pockets here or there, but also more certainty on the economic trajectory, and that will probably cause demand to increase," Prince Abdulaziz said.

There is further uncertainty around the US presidential election in November, which could see changes to US policy toward OPEC as well as individual OPEC+ members.

These factors could have a significant impact on market conditions and could necessitate a rethink in OPEC+ policy.