The oil market is expected to face a volatile and uncertain year in 2024, as the dynamics of supply and demand clash and create challenges and opportunities for producers and consumers. Analysts predict that the oil market will be influenced by three major factors: more OPEC cuts, a US production boom, and a market share war.
More OPEC cuts
OPEC and its allies, known as OPEC+, have agreed to extend their production cuts of 1 million barrels per day (bpd) until the end of March 2024, in an attempt to balance the market and support oil prices. The group has been reducing its output since May 2023, when it implemented a historic cut of 9.7 million bpd in response to the collapse in demand caused by the COVID-19 pandemic. The group has gradually eased the cuts to 5.8 million bpd by December 2023, but decided to maintain them at that level for the first quarter of 2024, amid concerns over the resurgence of the virus and its variants, and the slow recovery of global oil consumption.
The decision to keep the cuts was welcomed by some analysts, who believe that OPEC+ is acting prudently and responsibly to prevent a glut of oil in the market and a crash in prices. They argue that OPEC+ has the flexibility and the discipline to adjust its output according to the changing market conditions, and that the group has a positive influence on the stability and the sustainability of the oil industry.
However, the decision to keep the cuts was also criticized by some analysts, who claim that OPEC+ is being too cautious and conservative, and that the group is missing an opportunity to capitalize on the rising demand and the higher prices. They contend that OPEC+ is ceding market share and revenue to its competitors, especially the US shale producers, who have been ramping up their production and exports in response to the favorable market environment. They also warn that OPEC+ could face internal divisions and tensions, as some members may be tempted to cheat or exit the deal, in order to increase their output and income.
A US production boom
The US has been the main beneficiary of the OPEC+ cuts, as the country has been able to increase its production and exports of crude oil, and to challenge the dominance and the influence of OPEC in the global oil market. The US has been producing a record amount of oil, reaching 13.2 million bpd in November 2023, and surpassing its previous peak of 12.9 million bpd in November 2019. The US has also been exporting a record amount of oil, reaching 4.2 million bpd in October 2023, and becoming the world’s third-largest oil exporter, behind Saudi Arabia and Russia.
The US production boom has been driven by the shale revolution, which has enabled the US to tap into vast reserves of oil and gas that were previously inaccessible or uneconomical. The US shale industry has been resilient and innovative, overcoming the challenges of low prices, high costs, and environmental regulations, and adopting new technologies and techniques to improve efficiency and productivity. The US shale industry has also been supported by the favorable policies and incentives of the Trump administration, which has promoted energy independence and dominance, and reduced the barriers and the restrictions for oil and gas development.
The US production boom has had a significant impact on the oil market, as the US has been able to meet its domestic demand and reduce its dependence on imports, as well as to supply its allies and partners and increase its geopolitical leverage. The US has also been able to put pressure on OPEC and its rivals, and to influence the supply and the price of oil. The US has also been able to attract investment and create jobs and growth for its economy.
A market share war
The US production boom has also triggered a market share war with OPEC, as the two sides have been competing for customers and influence in the global oil market. The market share war has been intensified by the emergence of the delta variant, a more contagious and virulent strain of the coronavirus, which has caused a surge in infections and deaths, and a slowdown in the recovery of oil demand. The market share war has also been exacerbated by the tensions and the conflicts in the Middle East, which have threatened the security and the stability of oil supply and transit.
The market share war has been manifested by the different strategies and actions of the US and OPEC, and their respective allies and partners. The US has been pursuing a strategy of maximum production and export, aiming to increase its output and market share, and to lower the price and the profitability of its competitors. The US has also been using its sanctions and its diplomacy to isolate and weaken its adversaries, such as Iran and Venezuela, and to limit their oil exports and revenues. The US has also been seeking to diversify its sources and routes of oil supply, and to reduce its vulnerability to disruptions and shocks.
OPEC has been pursuing a strategy of minimum production and export, aiming to decrease its output and market share, and to raise the price and the profitability of its members. OPEC has also been using its cuts and its cohesion to balance and stabilize the market, and to prevent a glut of oil and a crash in prices. OPEC has also been seeking to strengthen its relations and cooperation with its allies and partners, such as Russia and China, and to expand its markets and influence in Asia and Africa. OPEC has also been seeking to diversify its economy and revenue, and to reduce its dependence on oil and gas.
The market share war has had mixed and uncertain outcomes for the oil market, as the supply and the demand of oil have been fluctuating and unpredictable. The oil price has been volatile and unstable, ranging from $40 to $80 per barrel in 2023, and averaging $60 per barrel for the year. The oil price has been influenced by various factors, such as the COVID-19 pandemic and its variants, the OPEC+ cuts and their compliance, the US production and exports, the geopolitical events and risks, and the market sentiment and expectations.
The market share war has also had implications and consequences for the oil industry and the global economy, as the oil market has been facing challenges and opportunities for growth and development. The oil industry has been undergoing changes and transformations, such as the consolidation and the diversification of the players, the innovation and the adoption of the technologies, and the transition and the adaptation to the low-carbon and renewable energy sources. The global economy has been experiencing impacts and effects, such as the inflation and the deflation of the prices, the stimulation and the contraction of the activity, and the creation and the destruction of the jobs and the wealth.
Sources:
US oil production boom delivers surprise for traders and unexpected boon for consumers
Delta variant, Middle East tensions fuel oil market uncertainty
US sanctions and diplomacy put pressure on Iran’s oil exports
OPEC seeks to expand its markets and influence in Asia and Africa
Oil Outlook: Record US Production Has Crushed OPEC Crude Market Share
How the oil market affects the global economy
