Uncertainties plague oil market

According to the Seatrade Maritime News, energy analysts point to a range of uncertainties that could influence oil demand, supply and price in the months ahead.

Unexpectedly weak oil demand in China so far this year is one of the factors that OPEC Plus members will be considering when they meet at the next Joint Ministerial Monitoring Committee at the beginning of October.

But there are a number of other factors which could affect their decision on whether or not to ease the 2.2 million barrels a day (bpd) of production cuts that are currently in place.

These cuts were originally agreed in 2020 when COVID struck and oil demand fell sharply. These were steadily eased as the pandemic passed but restrictions on output were introduced again in April 2023, which will be the subject of discussion at the October meeting.

Softer Chinese demand is mirrored elsewhere as geopolitical tensions and slower growth affect many regions. Global oil demand growth has slowed down over recent quarters even as some OPEC Plus members, notably Russia, exceed OPEC Plus output quotas.

Shipbroker Gibson notes that OPEC Plus recently cut oil demand growth expectations to 2.11 million bpd this year, but so far this increase has not materialized.

Further downward revisions to projections may be required and the issue casts doubt on the cartel’s forecast of a 1.78 million bpd demand increase in 2025.

The broker notes that the International Energy Agency has a more moderate demand growth forecast of 0.95 million bpd for next year.

Meanwhile, Poten notes that more non-OPEC production has come on stream since the pandemic, with the United States, Canada, Guyana, and Brazil increasing output and eating into OPEC’s share.

More non-OPEC crude will hit the market in 2025, as the International Energy Agency forecasts that supply is likely to rise by 1.75 million bpd, significantly more than likely demand growth of 1.0 million bpd.

Owners of smaller tankers will be closely watching developments in these non-OPEC countries where output is rising.

For VLCC owners, what happens in China is the most important factor because of the long-haul nature of the trade.

But the strategy that OPEC Plus members adopt at the October meeting is a key factor too.

If the cartel members decide to ease the present production restrictions, the process will take place gradually over time.

Poten observed, “If they start to roll back their production cuts, it will be very slow and in small increments, so as not to flood the market and undermine oil prices.”

United States allows antitrust suits against OPEC members to subjugate Saudi Arabia

In my previous blogs I have often highlighted that the Organization of the Petroleum Exporting Countries (OPEC), remains subservient to the United States. OPEC’s decisions to raise price or to enhance production quotas are dictated by the US President and/or US administration.

Kindly, allow me to say that Americans are most unthankful nation; they never spare a chance to influence OPEC decisions. To put Saudi Arabia, often termed defecto leader of the cartel, under further pressure, a House panel in the United States has passed a bill to open the OPEC oil production group and countries working with it to lawsuits for collusion in boosting petroleum prices. However it was uncertain whether the full chamber would consider the legislation or not.

In one of my previous blogs, “An agreement signed with United States in 1945 will continue to haunt House of Saud forever”, I had referred to an agreement signed in 1945 between President of United States, Franklin D. Roosevelt, and the Saudi King at the time, Abdulaziz, which defined the relationship between the two countries for the years to come. 

The deal that was struck between the two men at that time was that the US would receive all of the oil supplies it needed for as long as Saudi Arabia had oil in place, in return for which the US would guarantee the security of the ruling House of Saud.

The deal was altered slightly since the rise of the US shale oil industry. The US also expects the House of Saud to not only supply the US with whatever oil it needs for as long as it can but also that it will also facilitate the US shale industry to continue to function and to grow.

The NOPEC bill, introduced by Representative Steve Chabot, a Republican, passed on a voice vote in the House Judiciary Committee. It would allow the US Justice Department to bring anti-trust lawsuits against oil-producing countries in the Organization of the Petroleum Exporting Countries (OPEC).

Similar bills to pressure OPEC when oil prices are on the rise have appeared in Congress without success for more than 20 years.

"It's high time that we do more to fight ... production controls that continue to keep the price of crude oil and gasoline arbitrarily high in the United States," Chabot told the committee before the vote.

Oil prices have risen about 33% this year and on Tuesday hit the highest level in a month, above US$68 a barrel for Brent international crude. But that was well below the level of more than US$100 a barrel in 2008 when a similar bill passed in the full House.

The rise came despite a deal OPEC+, a group consisting of OPEC members, Russia and their allies, struck this month to gradually ease oil output cuts from May, as economies recover from the global pandemic. The deal came after US Energy Secretary Jennifer Granholm called on top OPEC producer Saudi Arabia to keep energy affordable for consumers.

A similar bill to pressure OPEC was reintroduced in the Senate last month, by Republican Senator Chuck Grassley, a supporter of ethanol, a motor fuel additive made from corn, and Democrat Amy Klobuchar. To become law, a bill would have to pass both chambers in Congress and be signed by President Joe Biden.