OPEC and Allies Consider More Oil Cuts, While IEA Predicts Extra Oil in 2024

22 Nov 2023

Context:

  • The Organization of the Petroleum Exporting Countries and allies (OPEC+) are likely to extend and may even deepen oil supply cuts into next year.
About International Energy Agency (IEA):

  • The IEA was created in 1974 to help coordinate a collective response to major disruptions in the supply of oil
  • Headquarters: Paris, France.
  • India’s Membership: Although India is not a member country.
    • India along with Brazil, South Africa, and China is an associate member of IEA.
  • The IEA is at the heart of global dialogue on energy, providing analysis, data, policy recommendations, and real-world solutions to help countries provide secure and sustainable energy for all.

IEA Forecasts 2024 Oil Surplus Despite OPEC+ Efforts

  • The International Energy Agency (IEA) expects a surplus oil supply in 2024, even if OPEC+ nations extend their cuts into next year
  • Decline in Oil Price: Since late September 2023, oil prices have witnessed a nearly 20% decline with the recent drop sparked by a significant increase in US crude inventories and production remaining at historic highs.
  • OPEC+: Saudi Arabia, Russia and other members have pledged total oil output cuts of about 5 million barrels per day (bpd), or about 5% of daily global demand
Oil Benchmarks: Distinctions of Brent Crude and West Texas Intermediate

  • Oil benchmarks describe where the commodity originates, which determines its use and allows investors to track the price of a specific oil type.
  • Brent Crude: It is the benchmark used for the light oil market in Europe, Africa, and the Middle East
    • Origin: Oil is produced near the sea, so transportation costs are significantly lower. 
  • West Texas Intermediate: It is the benchmark for the U.S. light oil market and is sourced from U.S. oil fields. 
    • Origin: Oil is produced in landlocked areas, making transportation costs more difficult.
  • Both Brent Crude and WTI are light and sweet, making them ideal for refining into gasoline.

Evolution of OPEC: From Founding Members to Global Collaboration with OPEC+

  • Founding Members: OPEC was formed in 1960 by Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. 
  • Headquarters: OPEC had its headquarters in Geneva, Switzerland, in the first five years of its existence. This was moved to Vienna, Austria in 1965. 
  • Objective: OPEC regularly meets to set oil production targets and coordinate output to help manage global oil prices for the entire group.
  • Members: Apart from founding members, other countries who joined OPEC include Algeria, Angola,Congo, Equatorial Guinea, Gabon, Libya, Nigeria, and United Arab Emirates.
  • OPEC+: In 2016, largely in response to falling oil prices driven by significant increases in U.S. shale oil output, OPEC signed an agreement with 10 other oil-producing countries (including Russia) to create OPEC+. 

News Source: Reuters

 

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