OPEC is expected to maintain its current oil production cuts despite increasing output from non-cartel countries putting pressure on prices. This insight comes from Spencer Dale, BP’s chief economist, and offers a glimmer of hope for oil markets that had speculated a reversal of the cuts might be imminent.
Earlier this year, OPEC hinted that it might begin to ease its production cuts—totaling 2.2 million barrels per day—if market conditions improved by the end of this year. However, this suggestion led to misconceptions among traders and business media, who interpreted it as a near-certainty of a rollback. This expectation, ironically, contributed to price pressures that undermined the very market conditions needed for a potential reversal.
Currently, OPEC cannot afford to increase production, especially as some member countries fail to meet their quotas. More significantly, the rise in output from the United States, Guyana, and Brazil poses a growing threat. The U.S., in particular, is a major factor, having added approximately 1 million barrels per day to global production last year, though growth is expected to slow this year.
The Energy Information Administration (EIA) projects a modest increase of 300,000 barrels per day in U.S. production for this year, while also revising its oil demand growth forecast down to 1.1 million barrels per day.
Oil demand is crucial for production decisions across OPEC and non-OPEC countries, and consistent strong growth is not guaranteed. For example, Brazil’s production surged by 13% last year to over 3.4 million barrels per day but has since wavered, dropping to about 3.1 million barrels daily in April. Brazil aims to boost production to 4.4 million barrels per day by 2034, but this goal is dependent on fluctuating prices and demand.
Guyana, another key player mentioned by BP’s Dale, has been steadily increasing its production, starting from zero in 2019 to over 600,000 barrels per day this year. The EIA forecasts Guyana’s output will rise to over 800,000 barrels per day next year.
If these production growth forecasts hold true, it would make it even more challenging for OPEC to reduce its production cuts. The combined output increase from the U.S. and Guyana could offset about half of OPEC’s cuts. Despite OPEC’s current predicament, the global oil market is facing a supply deficit.
Global oil inventories are consistently declining, and the EIA has revised its forecast to show a shortfall of around 750,000 barrels per day in supply versus demand in the latter half of the year, up from an earlier estimate of 500,000 barrels per day. With this ongoing deficit and stable prices, OPEC is unlikely to roll back its production cuts any time soon.