The recent dynamics within OPEC highlight challenges in achieving member cooperation, with Saudi Arabia seeking greater participation in production cuts from other members. The delay in the biannual meeting, held on November 30, indicates a lack of consensus on 2024 production quotas. While Saudi Arabia, a major contributor to production cuts, aims for more collaboration, the meeting concluded with no substantial changes but introduced a voluntary system of additional cuts to stabilize prices. Both Saudi Arabia and Russia committed to extending their cuts in the coming months, with Saudi Arabia requiring crude oil prices at $80 per barrel to balance its domestic budget.
Russia and Iran, despite economic challenges from sanctions and geopolitical conflicts, need increased crude oil revenues. The membership’s adherence to production quotas relies on an honor system, making cheating a persistent issue. Russia and Iran may have sold additional petroleum above their quota levels at discounted rates to countries like China.
Geopolitical tensions, including the wars in Ukraine and the Middle East, play a crucial role in shaping OPEC’s decisions. The war in Ukraine initially propelled oil prices to the highest level since 2008, providing economic leverage for Moscow. Meanwhile, rising hostilities in the Middle East, particularly in Israel, could contribute to sudden upside spikes in oil prices.
The U.S., despite recording record-level oil production, has strategic influence through the Strategic Petroleum Reserve (SPR). The Biden administration, acting as a lurking buyer, intends to repurchase crude oil when prices are at or below $67-$72 per barrel. The SPR, which stood at over 600 million barrels in late 2021, has decreased to 351.6 million barrels by late November 2023. The administration’s selective repurchases align with its target buying zone.
Technical support for crude oil prices is observed around the $72.37 level, just above the high end of the administration’s target buying zone. The discord within OPEC, the U.S. SPR plans, and geopolitical tensions create a complex scenario for crude oil prices. While OPEC grapples with cooperation challenges, Brazil’s entry into the cartel is expected to strengthen its global position in the long term. The intricate dynamics suggest that crude oil could be within the buy zone under the $80 per barrel level. However, the volatile nature of the commodity underscores the need for caution, leaving room to add on further declines and accounting for potential sudden price spikes.
In summary, OPEC faces cooperation hurdles, but the U.S. SPR plans and geopolitical turmoil may influence the cartel’s trajectory in 2024.
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