OPEC+ Production Cuts Impact on the Transportation Sector | Breakthrough

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Understanding the Intricacies of OPEC+ Production Cuts and Their Impact on the Global Crude Oil Market

Josh Delfosse

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Josh Delfosse
December 11, 2023

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At the end of November, the Organization of Petroleum Exporting Countries and their Alliance, commonly known as OPEC+ announced its decision to curb crude oil output by approximately 2.2 million barrels per day (bpd) for the first quarter of 2024. According to the group, this agreement aims to “stabilize and balance” the global oil market. The voluntary cuts were an extension of the existing 1.3 million bpd cuts made by Saudi Arabia and Russia, with the remaining 900,000 bpd distributed among Iraq, Kuwait, the United Emirates, Kazakhstan, Algeria, and Oman. With these cuts, OPEC+ now reduces production by around 5 million bpd, accounting for approximately 5% of global oil consumption. Let's delve into the details of this agreement and its implications for the crude oil market.

Unpack the Lack of Crude Oil Market Response to Increased OPEC+ Production Cuts

Interestingly, despite the announcement of increased production cuts, the market has not responded with upward price pressure. In fact, crude oil prices have experienced continuous downward pressure since November 30. Various factors have contributed to this trend, including market skepticism regarding the efficacy of the agreed production cuts. Past instances of countries failing to meet their production quotas have led to doubts about the actual implementation of these cuts.

Another contributing factor is the prevailing demand concerns in the market. China, as a major oil importer, has taken measures to stabilize its currency, while global discussions are underway to phase out fossil fuel usage to combat global warming. Moreover, economic headwinds in the eurozone and a stronger U.S. dollar have added to the downward pressure on prices.

U.S. Shale Producers Thrive as OPEC+ Reduces Production

Source: EIA, Bloomberg Intelligence

Source: EIA, Bloomberg Intelligence

Adding to the complexity of the situation, recent data from the Energy Information Administration (EIA) revealed a significant surge in U.S. oil production. Daily oil production in the U.S. reached a record high of 13.24 million barrels in September, with a substantial year-over-year increase. This surge is primarily attributed to OPEC+ aiming to raise prices through production cuts, inadvertently giving market share to U.S. shale producers. These cuts, intended to boost prices, have enabled U.S. shale producers to thrive, keeping crude oil prices below $80 per barrel. Per the visual, the U.S. has seized the lead in crude oil production, while Saudi Arabia and Russia continue to voluntarily limit their production under this OPEC+ agreement.

Navigating the OPEC+ Production Cuts and Its Impact on Your Transportation Network

The OPEC+ agreement to extend production cuts has sparked discussions and debates in the crude oil market. While the market remains cautious about the effectiveness of these cuts, various demand concerns and the surge in U.S. oil production have contributed to the downward pressure on prices. The coming months will be crucial in determining the long-term impact of these production cuts and their implications for the global oil industry.

To know the direct impact of these cuts on your transportation network, contact us to learn more about our transportation management technology solutions. Designed to help you navigate through these uncertain times, we can provide you with the tools and strategies trusted by best-in-class shippers. Contact us today to start the conversation!