How long can Opec+ play the waiting game?

The tepid oil price response to the decision by eight Opec+ producers to defer by two months to December the start of a phased return of 2.2mn b/d to the market has prompted many oil market watchers to question whether the producer group did enough. But Opec+ delegates insist that market uncertainties and internal group dynamics mean it was "the most reasonable" thing to do.

The mounting data and signals pointing to a slowdown in oil demand — particularly with respect to China, on which most hopes for growth this year were pinned — raise the question of whether the two-month deferral by Opec+was a strong enough move. Speaking at the S&P Global Commodity Insights Appec conference in Singapore last week, trading firm Trafigura global head of oil Ben Luckock claimed instead that the group was sending a "confused message". Opec+ "needs to pick which way it wants to go", because "trying to thread the needle for the next 12 months will not be what the market wants to hear", he said.

But Opec+ delegates canvassed by Argus pushed back against that view, insisting that although concerns about the global economy and demand are real and need monitoring, there is still too much uncertainty for Opec+ to have taken any stronger or more long-term action at this juncture. "Nobody is sure where demand is going," one delegate said. "The market is acting and making judgements on perception, anxiety… not facts." This is why "Opec+ had to act in this way, to allow for more time to assess things further".

Evidence of this uncertainty came in the form of the latest oil market outlooks from Opec and energy watchdog the IEA, which both made similar-sized downward revisions to their global oil demand forecasts for 2024, but from vastly different starting points. Opec sees growth at 2.03mn b/d, while the IEA sees growth of just 900,000 b/d. Much of the discrepancy lies in their assessments of Chinese demand growth, which Opec sees at 650,000 b/d and the IEA at just 180,000 b/d.

Another delegate said the two-month deferral was "the most reasonable response" to help maintain cohesion within the Opec+ group. Argus understands that formally laying out a roadmap for the unwinding of the 2.2mn b/d in June was key to getting all members of the alliance to agree to extending the production cuts in place today through to the end of next year. With that in mind, getting full buy-in for the two-month deferral will not have been easy, with some of the eight increasingly impatient about not being allowed to raise output.

Call the compliance department

This issue is especially pertinent when other countries — namely Iraq, Kazakhstan and to a lesser extent Russia — appear to be regularly flouting the targets they committed to meet under the deal, while Iran, exempt from production restraints, continues to increase output, despite still being under US sanctions.

Iraq and Kazakhstan have been under intense pressure in recent months to not only adhere to their pledged targets but also compensate for past overproduction. Earlier commitments have fallen short, with Iraq in particular failing to show any real improvement. But these latest pledges by Iraq and Kazakhstan "have come from the very highest levels", another delegate said. "This time will be different." If Iraq and Kazakhstan actually deliver, this should blunt the impact of any additional Opec+ barrels coming on to the market.

But with balances looking set to flip to a surplus from the start of next year, and concerns around demand looking likely to persist into early 2025, observers question whether there will even be space for the Opec+ eight to begin returning barrels from December. Trafigura's Luckock predicts "further deferrals, absent the price being higher than it is today". Some Opec+ delegates already concur.

By Nader Itayim