The crude oil market share of the Organization of Petroleum Exporting Countries (OPEC) has been declining since the cartel  came out with its Declaration of Cooperation (DoC). The share is under increasing threat from non-OPEC+ countries, analysts say.

According to research agency BMI, a unit of Fitch Solutions, propping up Brent through DoC has come at a price. “As of 2024, we estimate that their crude, condensate and NGL output has fallen by 3.32 million barrels a day (mbd) compared with 2016,” it said. 

Non-OPEC to dominate

Over the same period, the non-OPEC+ production has risen by 9 mbd, increasing its market share from 48.9 per cent to 55.1 per cent over the same period. “And, while OPEC+ still has ample scope to influence prices, it may be increasingly difficult to build a group-wide consensus,” the research agency said.

The International Energy Agency said non-OPEC+ production will dominate growth this year, accounting for close to 1.5 mbd. “By contrast, OPEC+ supply is expected to hold broadly steady from last year, assuming extra voluntary cuts that started this month are phased out gradually in 2Q24,” it said.

Since October 2022, OPEC+ has curbed its members’ production by 2 mbd as part of its efforts to boost crude oil prices, which dropped on poor demand in view of economic slowdown. In April, the cartel cut the output further by 1 mbd. 

Well supplied

On November 30, OPEC+ decided on output cuts of 2.2 mbd in the first quarter this year. Despite the cuts, crude oil prices have been hovering around $80 a barrel or below. Currently, Brent crude is quoting at $81, while Western Texas Intermediate at $76.7. 

“Previously, the group (OPEC+) sacrificed its production in order to bolster prices and safeguard revenues. However, its strategy is under increasing threat from rising output in non-OPEC+ markets and the progressive loss of its market share,” BMI said.

The IEA said barring significant disruptions to oil flows, the market looks reasonably well supplied in 2024, with higher-than-expected non-OPEC+ production increases set to outpace oil demand growth by a healthy margin. 

“While OPEC+ supply management policies may tip the oil market into a small deficit at the start of the year, strong growth from non-OPEC+ producers could lead to a substantial surplus if the OPEC+ group’s extra voluntary cuts are unwound in 2Q24,” it said.

Market to tighten?

BMI said the strong gains in the US supply over 2017-2019 was the key reason behind the temporary breakdown of the DoC in 2020, which triggered the short-lived price war of that year. 

The World Bank Commodity Outlook said supply from OPEC+ is projected to increase, assuming voluntary cuts from Saudi Arabia are shelved. “Growth of non-OPEC+ production is expected to slow from about 2 mbd in 2023 to 1.4 mbd in 2024, with production rising in Brazil, Canada, Guyana and the US,” it said. 

The Australian Office of the Chief Economist (AOCE) said the crude oil market will likely tighten as OPEC+ cuts back supply and demand recovers in 2024. 

Price forecast 

Since the Russian invasion of Ukraine, the US government has sold close to half the oil held in the Strategic Petroleum Reserve and has delayed plans to restock in H2 2023 while OPEC+ cut back on supply, the AOCE said. 

The World Bank said crude oil prices are forecast to decrease slightly in 2024 and edge down in 2025, but hover approximately 16 per cent above their previous 5-year average of $70/barrel.

The AOCE said Brent crude price is forecast to fall slightly to average $83, then to decline to average $78 a barrel by 2025. Higher than expected production from North America and Latin America, combined with slowing demand growth, is expected to drive this price fall.

Tightrope walking

BMI said, “Tensions have resurfaced sporadically since then, most recently culminating in Angola’s exit from OPEC, announced in December 2023.”  

Though OPEC has always been well-equipped to respond to temporary shocks to global oil markets. It cannot sustainably offset structural trends, such as the energy transition, the research agency said. 

OPEC+ must walk a tightrope, balancing the countervailing revenue impacts of higher prices and lower production, and ensuring that near-term revenue gains do not come at the cost of long-term losses, should OPEC+ action stimulate higher production elsewhere, it said.

The IEA said growth in global demand is expected to slow to 1 per cent in 2024, reflecting the delayed impact of tighter monetary policy in advanced economies. Demand in China is expected to increase only 0.6 mbd in 2024, as the economy moderates. 

Decarbonisation push

Other Asian countries account for most of the rest of anticipated global oil demand growth in 2023 and 2024.  In advanced economies, oil demand is expected to decrease in 2024, the agency said. 

The global energy body said it also assumes a production increase of 1.5 per cent in 2024 - about the same as in 2023 - due to both increases within and outside OPEC+.  “Among non-OPEC+ countries, US production growth is expected to slow to 0.5 mbd, with smaller additions from Brazil, Canada and Guyana providing nearly 0.7 mbd combined,” it said. 

However, BMI said over time, the push to decarbonise will shrink global demand pools, ramping up the competition to secure buyers among oil and gas producers. “This could put a strain on OPEC+ cohesion, more so as countries adopt differing strategies to adapt to the low-carbon economy,” it said. 

Geopolitical risks

The research agency said this may paint a bearish picture for the group – and, undoubtedly, all will face difficulties as the oil sector declines – the outlook differs markedly across different producers. 

Several OPEC members – notably Saudi Arabia and the UAE – are among those best placed to weather the global energy transition. However, others, such as those in North and West Africa, face far more acute climate-related risks.

The IEA said at the start of 2024, the risk of global oil supply disruptions from the Middle-East conflict remains elevated, particularly for oil flows via the Red Sea and, crucially, the Suez Canal.