Global oil futures benchmark Brent has largely held its price floor above $70 per barrel for much of November having threatened to breach it at one point. and it looks set to stay there for now.
Earlier in the month, with the U.S. benchmark West Texas Intermediate already below $70 and Brent lurking quite close to it in the face of weaker oil demand, an intervention by the Organization of Petroleum Exporting Countries largely prevented further price declines.
On November 3, the producers’ group opted to postpone its gradual planned increase in production (that’s currently lower by around 2.2 million barrels per day) by one more month to January 2025.
While OPEC never officially comments on oil price levels, the market widely assumed that it was attempting to protect the Brent price floor of $70. The move has worked so far and may just keep prices above the level till the end of the year, with a little circumstantial and temporary help from elsewhere.
The global oil demand dynamic has not materially altered and China’s economy remains a major concern. However, outages have been largely supportive of prices from a supply perspective, in particular recent disruptions at two major oil fields – Norway’s Johan Sverdrup and Kazakhstan’s Tengiz.
Johan Sverdrup field halted production temporarily on Monday following an onshore power supply failure. The field, which has a production capacity of 755,000 bpd, accounts for approximately 36% of Norway’s total oil output.
Additionally, ongoing issues at Kazakhstan’s Tengiz field have temporarily contributed to elevated Brent prices as well. The field’s output has been cut by around 30% this month due to ongoing maintenance and repair work. While repairs are likely to conclude by November 23, earlier estimates had pointed to a 20% reduction in output with the higher figure coming as a surprise.
Supply Tightness Won’t Last
Both outages may be price supportive but their impact is unlikely to be a prolonged one. And more U.S. oil, especially light sweet crude, is likely heading the market’s way following the election of Donald Trump as the country’s 47th president.
A Trump presidency, largely deemed to be pro-oil, will likely herald a higher U.S. output for 2025. With the U.S. still pumping north of 13 million bpd, lower oil demand next year, and a potentially stronger dollar, crude prices may head lower and Brent’s $70 floor could well be breached.
A big question for the market is – what will OPEC do next and how can it extricate itself from where it is? If it holds back an output increase or institutes further cuts, the benefits are unlikely to be as pronounced as it would like them to be.
Even the most unremarkable of price rises any supply constriction measures may trigger will help non-OPEC, especially U.S., producers hedge their production at relatively higher prices to improve their margins. And what’s more, OPEC loses market share in the process.
However, if it restores or ups production, prices may head lower for longer knocking some but not all of the competition out of the park, again with questionable benefits at best. Demand being what it is, 2025 is shaping up to be one of relatively lower oil futures prices and a vexing one for OPEC.
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