The major oil producers' group of OPEC+ is set to include Brazil, the world's eighth largest oil producer as its 24th member and now hopes to increase its declining market share in its attempts to use production cutbacks for raising prices to lucrative levels.
The decision came during the 36th OPEC and non-OPEC ministerial meeting held on Thursday in Austria's capital, Vienna, via videoconference.
OPEC+ endorsed their previous output cut decisions, which had been agreed to continue until the end of next year, in order 'to ensure a stable and balanced oil market.'
Soon after the meeting, several members of the group announced additional voluntary cuts by around 2.2 million barrels per day (bpd) for the first quarter of 2024.
The additional voluntary cuts announced by the OPEC+ countries include Saudi Arabia by 1 million bpd, Iraq by 223,000 bpd, United Arab Emirates by 163,000 bpd, Kuwait by 135,000 bpd, Kazakhstan by 82,000 bpd, Algeria by 51,000 bpd and Oman by 42,000 bpd.
Russia will cut 500,000 bpd for the same period from the average export levels of May and June of 2023. It will consist of 300,000 bpd of crude oil and 200,000 bpd of refined products.
The voluntary cuts will put in place from January until March of next year and will be returned gradually depending on market conditions “to support market stability.”
Some production cuts had been expected by the market, however, the announcement that Brazil would be the 24th OPEC+ member as of January 2024 came as a surprise.
- OPEC+ and Brazil merger will benefit both parties
Both the OPEC+ and Brazil will benefit from the fresh cooperation, Cuneyt Kazokoglu, Director of Energy Transition and Energy Economics of Facts Global Energy (FGE), a London-based energy consultancy.
“It is too early to discuss the implications of Brazil's participation in OPEC+, however, what we know is that, for now, Brazil will not be included in the output cuts announced on Thursday,” Kazokoglu told Anadolu.
Being among the OPEC + group's policy makers, who have the power to impact oil prices, “allows Brazil, a major oil producer, to benefit from first-hand market knowledge of the group and the chance to shape this policy,” Kazokoglu noted.
According to Kazokoğlu, OPEC+ benefits from admission of Brazil as this merger expands the group’s borders to other continents and gives the chance to grow further
“Another aspect to Brazil’s OPEC+ membership is the merger of the oil producers under state control,” he underscored.
Emphasizing that the OPEC+ group’s production capacity will reach a significant level with the inclusion of Brazil, Kazokoglu said managing such a large production in a coordinated manner “is a very important issue.'
- Brazil’s OPEC+ membership will secure group’s share
Norway-based Rystad Energy's Senior Vice President Jorge Leon said the outcome of the ministerial meeting was “a bittersweet victory” for Saudi Arabia, the group's kingpin.
“The Kingdom won the backing of some OPEC+ members to contribute to output cuts into next year, but others remain opposed or on the fence and are not included in this fresh round of reductions,” he said.
Leon cautioned that the inability to secure a group-wide decision on production cuts “does not bode well for the group’s unity and cohesion and limits the group’s ability to balance the market.”
Recalling the sudden drop of oil prices soon after the announcement, Leon said such a price movement suggests that the market was disappointed by the outcome.
Leon highlights two factors for the price decline that followed the OPEC+ production policy decision.
“Firstly, the cuts are short-term, for now, and only valid for the first quarter of 2024. Second, and most importantly, the group failed to agree to a strategy unanimously and had to rely on voluntary unilateral cuts instead,” he said.
Originally scheduled for Nov. 6, the ministerial meeting of the OPEC+ group was postponed for four days due to disagreements over output quotas for African countries.
Leon said with the renewed cuts, around 400,000 bpd of market deficit was expected for the first half of 2024, which will cause “the oil prices to hover between $80 and $85 per barrel in the coming months.”
As the eighth-largest oil producer globally, producing around 3.6 million bpd, Brazil's decision to join the OPEC+ alliance was another important outcome of the ministerial meeting, Leon said.
“Adding Brazil’s production to the group will take OPEC+’s global market share to more than 60%, returning it to 2018 levels,” he added.
- Oil prices will stay around for $75 a barrel until mid of next year
Matt Stanley, the Middle East Partnerships lead at analytics firm Kpler, said disagreements among OPEC+ members mostly the result of African producers who have less influence over their compliance.
Noting that there would always be disagreements, Stanley said the group has so far “done remarkably well.”
“They will continue to do remarkably well,” he explained, adding that the market is not counting these disagreements as negative.
While explaining the cause of the recent price declines, Stanley pointed to the excess of crude oil in the market while demand is rebounding.
“We think that the voluntary cuts by Saudi will be extended over the whole of next year, so they will keep on deferring a million barrels a day they voluntarily cut. And then, others who voluntarily cut as well, we see those cuts will be in place until July next year,” Stanley said.
He predicts that the oil prices would come under pressure at the start of next year due to supply surplus.
The prices would stay around $75 a barrel until the middle of next year before starting to pick up as the world draws down the crude oil stocks, he noted.
Calling the concerns that the OPEC+ supply cuts would cost the group’s market share, Stanley said, “The world needs the oil. The problem is that the world needs the right kind of oil and at the moment what's being cut is the medium sour grade which is why prices are being kept high.”
By Firdevs Yuksel and Sibel Morrow
Anadolu Agency
energy@aa.com.tr