Increasing Disputes over Stabilizing Oil Prices What should OPEC do

On November 22, the price of light crude oil futures for delivery in January 2024 on the New York Mercantile Exchange fell 67 cents to close at $77.1 per barrel, a decrease of 0.86%; The London Brent crude oil futures for delivery in January 2024 fell 49 cents to close at $81.96 per barrel, a decrease of 0.59%.

On the same day, OPEC stated that the OPEC+talks, originally scheduled for November 26th, would be postponed for four days until November 30th. The news spread, and the decline in international oil prices widened in response.

In response, OPEC representatives claimed that Saudi Arabia had difficult negotiations with member states on production levels, and since then, WTI crude oil and Brent crude oil have continued to decline. At around 11 pm Beijing time on Wednesday evening, the intraday decline was about 5%.

Currently, both crude oil benchmarks have fallen for four consecutive weeks. Oil broker Evans stated in a report that in order to support prices, OPEC and its allies not only need to extend production cuts, but also need to increase the intensity of production cuts.

However, this significant decline has not been sustained: as of the close of crude oil futures in the early hours of November 23 Beijing time, the majority of the lost ground on that day had been recovered by American Oil and Oil Company, with only a slight decline.

According to industry insiders, the reason for the recent fluctuations in international oil prices is related to the controversial focus of media coverage of this OPEC+conference. The latest media report suggests that the main reason for OPEC+'s postponement of production meetings may be due to Saudi Arabia and other African oil producing countries being unable to control them. Delegates at the meeting revealed that Angola and Nigeria are dissatisfied with the practice of larger oil producing countries with greater language rights to lower their quotas, and the parties need more time to negotiate.

Since last week, concerns about supply constraints have subsided due to increased inventory and concerns about a global economic slowdown. Crude oil futures have plummeted, putting greater pressure on OPEC+'s policy of stabilizing oil prices. Some analysts believe that the sharp drop in crude oil prices is mainly due to the stronger than expected domestic production of non core OPEC members, partially offsetting the production reduction of core OPEC member countries.

From the current situation, OPEC is facing enormous pressure to balance and control oil prices and avoid significant fluctuations.

From the situation of oil producing countries such as Saudi Arabia and Russia, this year we have had to support oil prices by reducing production.

Russia's crude oil production in October remained almost stable, with an average of 1.318 million tons per day, still exceeding the production limit commitment aimed at supporting oil prices. At a conversion rate of 7.33 barrels per ton, this is equivalent to 9.66 million barrels per day, an increase of nearly 27000 barrels compared to September. In response to Western sanctions, especially the oil price ceiling imposed by the Group of Seven, Russia had previously promised to reduce crude oil production by 500000 barrels per day starting from March and continuing until the end of 2024. OPEC leader Saudi Arabia has made even greater progress, even reiterating its intention to reduce production by 1 million barrels per day by the end of the year.

However, many non OPEC countries around the world have increased their supply. For example, oil production in oil producing countries such as the United States, Guyana, Canada, and Brazil is all growing rapidly, especially last week when the United States maintained its highest oil production in history and oil exports have also been soaring significantly. The Brazilian government has set a goal of becoming the world's fourth largest oil producer by 2029. Iraq said that the pipeline passing through Türkiye could resume exports of 450000 barrels per day at any time after being closed for more than half a year.

In addition, there are also reports that the disagreement between oil prices and production is related to African countries. African countries belong to the smaller producing countries in the OPEC group, rather than the largest oil exporting countries, so after a significant decline in oil prices, prices rebounded in the late trading session. In addition, some traders pointed out that the decline in oil prices is also related to lower liquidity in the West before the Thanksgiving holiday.

From a market perspective, the main driving factor of the oil market is the global economic outlook, especially for major oil consuming countries such as the United States and China, as well as their impact on oil demand, as well as the supply response of OPEC+combined with voluntary production reductions in countries such as Saudi Arabia and Russia.

From a geopolitical perspective, as the Israeli-Palestinian conflict has not spiraled out of control, the market premium driven by the war has decreased, and economic fundamentals have once again become the key factor affecting oil prices. Recently, global energy demand has cooled due to factors such as climate and economic slowdown. Therefore, in the short term, there is not much room and possibility for further oil price increases.