After years of sustained high oil prices and stringent market control, OPEC+ is encountering significant challenges that could reshape the global oil landscape. Recently, the Brent crude benchmark fell below $70 per barrel for the first time in three years, and the International Energy Agency (IEA) has projected a continuing decline in prices.
Fatih Birol, head of the IEA, attributed the anticipated price drop to weak global demand and increased oil production from non-OPEC countries, particularly the United States. “Given the current weak demand and substantial oil supply from non-OPEC countries, we may see further downward pressure on prices,” Birol stated.
Oil prices surged following Russia’s invasion of Ukraine, which led to sweeping energy sanctions and a tight supply of global crude, enabling OPEC+ to exert significant market control. However, recent developments have caused a shift in market sentiment. According to the Financial Times, concerns over slower economic growth in China and the United States have led traders and speculators to reassess their positions, prompting OPEC to postpone its plan to reverse cuts of more than 2 million barrels per day.
Birol identified the slowdown in Chinese oil demand as a major factor contributing to the price decline. “Over the past decade, China has accounted for approximately 60 percent of global oil demand growth. Now, with the Chinese economy slowing, this growth has stalled,” he noted. Beijing is grappling with a prolonged property crisis, characterized by numerous unfinished housing projects, escalating debts, weak consumption, and high unemployment rates, all while facing a record number of new graduates—11.9 million.
The downturn presents a significant challenge for major oil companies. In the past three years, shareholders of oil supermajors have enjoyed substantial returns as companies aggressively repurchased shares. Bloomberg reports that ExxonMobil, Chevron, Shell, TotalEnergies, and BP plan to repurchase over $16.5 billion in shares this quarter alone, equivalent to $66 billion annually or about 5.5% of the sector’s current market value. However, investment banking firm Jefferies Financial Group Inc. has warned that this model may soon become unsustainable as falling oil prices threaten to exacerbate financial strain, potentially leading to increased indebtedness for many international oil companies.
OPEC+’s traditional strategy of controlling supply to drive up prices and revenues may also be coming under pressure. Recent attempts to boost the market by delaying supply increases have not succeeded in reversing the Brent benchmark’s decline. As a result, there is growing speculation on Wall Street about whether OPEC and its allies might reverse their output cuts in an effort to reclaim market share.
India, the world’s third-largest oil importer and consumer, has been vocal in its call for OPEC to adjust its strategy. India aims to reduce fuel prices while addressing its growing energy needs. As China’s influence wanes, other Asian countries like India are becoming increasingly important to global oil demand. The IEA notes that with China falling short of its demand forecasts, other Asian nations will become vital to future growth in oil consumption.
Despite these shifts, OPEC remains optimistic about future oil demand. While the IEA forecasts a global demand growth of 903,000 barrels per day this year, OPEC projects a higher growth rate of 2.03 million barrels per day for 2024 and 1.74 million barrels per day for 2025.
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