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OPEC Production Rises and Angola Leaves. The Stakes Rise for OPEC Policy in 2024

By: Harry Altham, Energy Analyst, Market Analysis EMEA & Asia

OPEC Production Rises and Angola Leaves. The Stakes Rise for OPEC Policy in 2024
 
Harry Altham
Energy Analyst, EMEA & Asia

Near-dated crude futures are nearly 1% higher this morning, having fallen almost $3/bbl yesterday amid early-year demand-side uncertainty. Chinese crude oil production grew by 1.6% last year to 4.16M bbd, close to the 2015 record high 4.3M bbd but a smaller rate of growth y/y (2% the year before); Reuters predicts that the rate of growth will continue to slow in 2024 as the ‘easy to access’ wells in China become more difficult (and expensive) from which to extract crude. 

image 87335
Source:  National Bureau of Statistics, Refinitiv

Some of this morning’s bullishness comes from the continued closure of Libya’s Shahara oil field (to the tune of 0.3M bbd), which is adding price pressure to a Mediterranean basin already wobbled by a geopolitically tense Middle East. To that end, ship tracking data suggest that oil cargoes continue to flow through the Red Sea, despite a series of recent attacks; the vast majority of incidents have targeted Israeli-linked container vessels and (evidentially) not oil tankers; Israeli-linked vessels (not necessarily carrying cargoes to Israel) have been attacked in the Arabian Gulf, but they are not passing through the Bab-Eel-Mandeb.

OPEC production increased by 10k bbd during December to 26.66M bbd, as a 40k bbd increase in Iraqi production was offset by small declines from countries such as Saudi Arabia and Iran. For all figures moving forward (including today) we are removing Angola from calculations as they are no longer an OPEC member (as of 1st January 2024) – more on this below.  
ANGOLA'S DEPARTURE POSES PROBLEMS FOR OPEC UNITY AND POLICY
During its last month of OPEC membership, Angolan production increased by 80k bbd to 1.22M bbd, which is a high dating back to October 2020. Angola’s exit from OPEC at the beginning of the month came as a result of its strong disagreement with Saudi Arabia over a reduction to its baseline for 2024 to 1.11M bbd, with the African country sending a note of protest to OPEC after the move in early December. Angola’s exit reduces OPEC’s output figure by 4% every month and reduces OPEC’s total market share by one percentage point to 26% of global output. 
image 87336
Source: OPEC, Refinitiv, Stonex
While there is no public indication of another imminent departure from OPEC, Angola’s departure amid tightening OPEC supply is a substantial concern for the group. Quota-based production from the core OPEC members is now limited to just over 21% of the global market; this was above 35% at the beginning of the previous decade. Qatar (2019) and Ecuador (2020) have also departed the group in recent years, while it is now clear that there is no consensus within the remaining OPEC members. Moreover, although Brazil is widely thought to be joining OPEC+ in the coming months (production of 3.7M bbd), the CEO of Petrobras stated last month that the country ‘would never’ join the quota system of production, chiefly because Petrobras is a publicly-traded company. 
Angola’s departure poses problems for Saudi Arabia because it needs to rebuild relationships in order to achieve a consensus on output for April, else it risks facing further mutiny. In order to price set, Saudi-led OPEC requires strong market share, but, even when we factor total OPEC+ output (to paint an OPEC+-friendly picture), it has lost close to 10% of its 2022 slice of global supply. The risk of demanding any further output cuts (should we see weak demand approaching Q2) is of another departure from OPEC, which Saudi Arabia will want to avoid. Doing so may mean Saudi Arabia has to give concessions to OPEC members who want to see their output increase, which goes against its own national interests. 
One thing is certain. The meeting that we expect at the turn of February and March has a lot riding on it. 
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