2024 looks to be a very good year for OPEC+

2024 looks to be a very good year for OPEC+. IEA’s crystal ball projects a marginal 0.2 m b/d decline in the need for oil from OPEC to 28.2 m b/d. But that is easy for OPEC handle as it holds out waiting for the re-acceleration in global manufacturing some time in the future. What really catches our attention is the US EIA’s projection of US liquids falling 0.4 m b/d QoQ to Q1-24 and then going close to sideways the rest of 2024 with production down YoY in both H2-24 and Q4-24. This is the best Christmas present ever to OPEC(+) if it plays out like this. Icing on the cake for OPEC+ is that the US now has started to think like an oil exporter who doesn’t like the oil price to drop as it would hurt oil-jobs, production and oil exports. ”Mine at USD 79/b” says the US Office of Petroleum Reserves as it aims to rebuild its SPR. 

Bjarne Schieldrop, Chief analyst commodities, SEB

IEA depicts a slightly lower Call-on-OPEC in 2024 but nothing OPEC(+) can’t handle. Yes, there are concerns for global oil demand both now and next year. In its monthly report today the IEA adjusted Q4-23 demand down by 0.6 m b/d and demand for 2024 down by 0.1 m b/d to 102.8 m b/d. It also adjusted its projection for non-OPEC supply 2024 up by 0.1 m b/d to 69 m b/d. The implication is that Call-on-OPEC falls to 28.2 m b/d in 2024 as non-OPEC supply is projected to grow slightly faster than global demand. Call-on-OPEC was 28.4 m b/d in 2021, 2022 and 2023. Equal for all three years. It is of course bad news for OPEC that the need for its oil declines by 0.2 m b/d in 2024 in IEA’s projection. But that is totally within the capacity of OPEC(+) to adapt to. If IEA’s scenario plays out, then there is no sweat at all for OPEC+. It will then be easy sailing for the group to control the oil market as it wish with just a small, marginal adjustment of supply.

US EIA depicts an OPEC dream scenario for 2024. What stands out the most in our view is the monthly STEO report from the US EIA on Tuesday this week. It projects that US production of hydrocarbon liquids will shift abruptly from booming supply growth in 2023 (+1.4 m b/d YoY)  to instead a QoQ decline of 0.4 m b/d in Q1-24 and then basically flat-lining the rest of 2024. US production is set to be down YoY in both H2-24 and Q4-24 the EIA projects.

This is a dream scenario for OPEC+. It is really the best Christmas gift it could get from the US. The fundamental challenge for OPEC+ is booming non-OPEC+ supply. And US shale oil supply is the dominating element in that respect. OPEC+ has very little to worry about in 2024 if US liquids production plays out as the US EIA now projects.

What was special in Q4-23 was that US liquids production rose 0.6 m b/d QoQ while global oil demand contracted 0.6 m b/d QoQ at the same time with declining oil prices as a result.

The US SPR office joins in: ”Mine at USD 79/b” (”Mine at USD 79/b”). From Jan 2022 to Nov 2023 the US poured 242 million barrels of oil from its Strategic Petroleum Reserves (SPR) into the commercial market. This prevented oil prices from rallying out of control. But it has also drawn US SPR inventories down to only 50% capacity. The US wants to rebuild its SPR. A while back it said it would be a buyer if the WTI price fell down to USD 67-72/b. Recently however it stated that it would buy if the price is USD 79/b or lower. The volumes aren’t enormous but the are noticeable and they could be larger if Congress allocates more money to rebuild the SPR.

The US is starting to think like an oil exporter. It doesn’t want the oil price to drop. Rebuilding the US SPR is a win-win for the US. 1) It gets to rebuild its SPR for later strategic use and 2) It ensures that the oil price doesn’t drop hard to low levels which would lead to a sharp decline in US oil production, shedding of employees in the US oil sector and a sharp reduction in US oil exports. The US is starting to think like an oil exporter. Just like OPEC+ it doesn’t like the oil price to drop.

US liquids production with projection to 2024 in m b/d. Projected to flat-line in 2024

Source:  SEB graph, Data from US EIA STEO December report.

US liquids production with projection to 2024 in m b/d. A sharp decline into Q1-24

Source:  SEB graph, Data from US EIA STEO December report.

Total US liquids production grew very strongly in 2023. Especially in Q4-23 vs Q3-24. Projected to contract by 0.4 m b/d into Q1-24 almost reversing the gain in Q4-23

Source:  Source:  SEB graph, Data from US EIA STEO December report.

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