In an effort to boost the market, producers in OPEC+ have decided to reduce their voluntary oil output for the first quarter of next year. However, this decision has caused a decline in crude prices.
After meeting virtually on Thursday, Saudi Arabia, Russia, and other OPEC+ members—who produce over 40 percent of the world's oil—released a statement compiling the declarations of voluntary reductions made by their respective nations. Brazil was extended an invitation by OPEC+ to join the organisation.
Following the OPEC+ producers' agreement to the reduction, oil prices experienced a decline after increasing by almost 1 percent earlier in the session. The benchmark price of Brent crude for February futures at 18:36 GMT was around 2 percent less than USD 81 per barrel.
The group met to discuss 2024 output amid forecasts that the market faces a potential surplus, and a 1 million barrel per day (bpd) voluntary cut by Saudi Arabia is set to end next month.
In the face of economic uncertainties, geopolitical tensions, and inflationary pressures, global oil demand has displayed remarkable resilience, riding on the normalisation of demand and China's steady reopening.
Pulkit Agarwal, Head of India Content at S&P Global Commodity Insights, sheds light on the current scenario and anticipates a potential slowdown in demand growth for 2024 and 2025 once the current influencing factors recede.
"Despite challenges, non-OPEC+ supplies continue to surge, acting as a potential counterbalance to the expected decline in demand growth. The decisions taken by OPEC+ on production cuts become pivotal, given their substantial influence on market dynamics," Pulkit stated before the OPEC+ decision was released.
According to S&P Global Commodity Insights' supply-demand balances, an oversupply is expected, leading to stock builds in the first half of 2024, with some deficit seen only by Q3 2024.
"The future trajectory of oil prices heavily depends on OPEC+'s decision on November 30th, projecting a scenario where oil prices could hover above USD 80/bbl and potentially breach USD 90/bbl by Q3 2024," Pulkit told Businessworld prior to OPEC+'s decision being released.
Shifting gears to the energy transition front, Gauri Jauhar, Executive Director of Energy & CleanTech Consulting at S&P Global Commodity Insights, emphasises the intricate balance India faces in navigating the energy transition and security.
"As India strives for sustainable growth aligned with its goal to become an upper-middle-income economy by the mid-2030s, the transition will unfold gradually, guided by economic shifts in mobility, urbanisation, and reliability," Gauri added.
S&P Global Commodity Insights' scenarios project a modest decline in fossil fuels in the primary energy mix and a rise in renewables in the base case.
Gauri underlined, "In a "green rules" scenario, a more significant transition is anticipated, marked by substantial declines in fossil fuels and an increase in renewables. In the challenging "discord scenario," a just energy transition narrative unfolds with minor changes in the primary energy mix."
As the energy sector braces for 2024, the experts underline the complex interplay of global oil dynamics and India's nuanced approach to a sustainable energy future. The decisions made in the coming months, both within OPEC+ and on the broader policy front, will undoubtedly shape the trajectory of the energy landscape in the years to come.