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OPEC+ has staved off an oil surplus this year by deciding to restrain production a little longer. But the temporary fix won\u2019t hold back the supply glut awaiting global markets in 2025.\u00a0<\/p>\n
The group led by Saudi Arabia and Russia chose on Thursday to\u00a0delay plans<\/a>\u00a0to restore output by two months, after faltering economic growth in China and swelling American supply pushed crude prices to a 14-month low.\u00a0<\/p>\n By changing its road map for reviving supply, the group has probably averted the excess that had been otherwise expected by leading industry figures like Trafigura Group<\/a> and the\u00a0International Energy Agency<\/a>. Crude\u2019s rout briefly stabilized.<\/p>\n Yet even if OPEC+ continues to constrain production throughout 2025, a surplus will still emerge amid subdued demand growth and burgeoning output from the US, Guyana, Brazil and Canada, according to the IEA. Prices are set to slump toward $60 a barrel, Citigroup<\/a> Inc. and JPMorgan Chase<\/a> & Co. predict.\u00a0<\/p>\n The market\u2019s decline offers some relief to consumers and central banks after years of rampant inflation, and even a potential tailwind for Vice President Kamala Harris\u2019s election campaign. But it leaves prices too low for the Saudis and others in the Organization of Petroleum Exporting Countries to cover government spending.\u00a0<\/p>\n \u201cIt doesn\u2019t look good at all for OPEC+ in 2025,\u201d said Christof Ruehl, senior analyst at Columbia University\u2019s Center on Global Energy Policy. \u201cEverybody would agree that non-OPEC supply is strong enough to create a surplus in the market. And holding back supply now to keep prices up encourages that, of course.\u201d<\/p>\n The math for crude markets in 2025 is stark. Global oil consumption will expand by less than 1 million barrels a day next year \u2014 or roughly 1% \u2014 as the post-pandemic rebound loses steam and the transition to electric vehicles gathers force, the IEA projects. The Paris-based agency advises most major economies.<\/p>\n China, the engine of oil demand for the past two decades, is showing a diminished appetite for the commodity.\u00a0Imports have dwindled<\/a>\u00a0to the weakest pace in almost two years as economic growth cools and top industry officials envisage a\u00a0shift away<\/a>\u00a0from fossil fuels. \u00a0<\/p>\n Muted global consumption growth will be outmatched more than 50% by the tide of new production from outside the 23-nation OPEC+ alliance, with 40% coming from the US, according to the IEA. While the nation\u2019s shale boom has eased, it continues to provide substantial volumes of new supply.<\/p>\n As a result, global oil inventories stand to accumulate next year, beginning with a hefty build-up of 1.3 million barrels a day during the first quarter, according to the IEA. In this context, OPEC+ has only \u201climited scope\u201d to add barrels, BP<\/a> Plc chief economist Spencer Dale warned last month.<\/p>\n \u201cOPEC\u2019s decision is not a decisive one,\u201d said Henning Gloystein, an analyst at Eurasia Group. It \u201cmay defend Brent prices above $70 and help prevent oversupply, but the demand side is weakening, especially in China. We\u2019ll see whether OPEC can still go ahead with even the delayed tapering.\u201d<\/p>\n Crude\u2019s losses deepened on Friday after state-run\u00a0Saudi Aramco<\/a>\u00a0cut pricing of its flagship crude grade for its main market in Asia next month, another signal of demand concern. Brent tumbled as much as 1.8% to $71.35, the lowest since May 2023.<\/p>\n In June, when the market outlook appeared brighter, the cartel outlined plans to gradually revive 2.2 million barrels a day of output, which had been halted during a series of cutbacks made since late 2022. The recovery was supposed to begin with a hike of 180,000 barrels a day in October.<\/p>\n Yet the coalition vacillated over the plan as soon as it was announced. Led by Saudi Energy Minister Prince Abdulaziz bin Salman, members repeatedly stressed they could \u201cpause or \u201creverse\u201d the increases if necessary. Even a political crisis in\u00a0fellow member Libya<\/a>\u00a0\u2014 which shuttered more than 50% of output \u2014 couldn\u2019t reassure the group enough to open the taps a little.\u00a0<\/p>\n If OPEC+ proceeds with its revised plan \u2014 which will still bring back 2.2 million barrels of production, but do so twp months later than previously planned \u2014 it will amplify the impending surplus in 2025.<\/p>\n A further delay could avoid this, but it\u2019s unclear how much longer the group can sustain the discipline to keep barrels off the market.\u00a0<\/p>\n The United Arab Emirates \u2014 one of the organization\u2019s biggest producers \u00a0\u2014 has been keen to deploy recent investments in new capacity, which Abu Dhabi says has reached a substantial\u00a04.85 million barrels a day<\/a>. That\u2019s roughly 5% of world supplies.<\/p>\n Other members such as Iraq, Russia and Kazakhstan have struggled to deliver the cutbacks they were supposed to make at the start of the year. Baghdad has long chafed at OPEC+ quotas while it tries to rebuild an economy shattered by decades of conflict and sanctions, while Moscow seeks revenue to fund President Vladimir Putin\u2019s war against Ukraine.<\/p>\n Despite the OPEC+ decision to pause, JPMorgan and Bank of America<\/a> Corp. lowered forecasts for crude prices. For group leader Saudi Arabia, the deteriorating outlook threatens financial pain.\u00a0<\/p>\n Riyadh needs prices close to $100 a barrel to fund the economic transformation plans of Crown Prince Mohammed bin Salman, which span futuristic cities and premium sports players, data from the International Monetary Fund indicate. The kingdom has been forced to scale back spending on flagship projects after a\u00a0four-quarter economic slump<\/a>.<\/p>\n If the OPEC+ strategy continues to struggle, the group could consider a more extreme alternative, Bank of America and BNP Paribas<\/a> warn: ramping up production to claw back market share and squeeze out rivals like US shale. Neither consider this the most probable scenario, but its likelihood may be rising.<\/p>\n \u201cOne wonders when the patience of intentionally giving up market share with no return in sight could run out,\u201d said Tamas Varga, an analyst at brokers PVM Oil Associates Ltd.<\/p>\n<\/div>\nRecommended reading:<\/strong>
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