OPEC+ will need to maintain its oil production cuts in 2024, Citigroup’s Max Layton told Bloomberg TV.
Abandoning this policy could cause oil prices to fall by up to 50%.
Weak global demand in 2024 could lead to even deeper cuts, Fitch Ratings noted.
Oil prices could see a sharp fall next year if OPEC+ producers abandon their current production cuts, said Max Layton, global head of commodities research at Citigroup. Bloomberg Television.
Organization of Petroleum Exporting Countries plans to further cut oil production 900,000 barrels per day in the first quarter of 2024, in addition to previous promises this year. If member countries work together to maintain these quotas, oil prices could balance between $70 and $80 a barrel, said Layton, global head of commodities research.
But if OPEC’s spare capacity comes back online, oil markets could fall between 30 and 50 percent, he added – a scenario the organization is not eager to test.
“I think the alternative is so painful that it’s very likely you’ll get that kind of half a million barrels a day over the next year at the right price,” he said.
This year, down Overall demand and an oil supply overhang have been the main pressures on crude prices. Through 2024, Layton expects this to continue, with an overall surplus of around 600,000 barrels per day.
While Layton expects some demand recovery in China, other analysts warn that China’s current economic malaise could actually cause a global growth will decline sharplyencouraging OPEC to further limit oil production.
“Weak global growth in 2024 could lead to further OPEC+ cuts if the oil market moves decisively into surplus, but the latest agreement in late November 2023 highlighted the reluctance to significantly reduce production,” Fitch Ratings said. The rating agency expects global growth to decline by 2.1% next year.
Still others have suggested that OPEC+ could abandon its short-term production restrictions and flood the market with supply in order to blunt the growing competitiveness of U.S. producers.
While strong Western production has softened the impact of OPEC cuts, allowing prices to fall would lead to the “bankruptcy” of US industry, according to a market veteran. Paul Sankey told Business Insider.
“I think to be precise, it’s a market share war,” he said.
However, such a move could also have negative repercussions for the oil cartel, with some member countries demanding higher oil prices to cover public spending.
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