OPEC+ Unity Will Be Tested As Market Share Shrinks

OPEC has recently released its Montly Oil Market Report. The report showed that OPEC’s oil demand forecasts for 2024 and 2025 were revised down.

The demand growth forecast for 2024 was reduced by 107,000 bpd to 1.8 million bpd, while the 2025 forecast was cut by 103,000 bpd to 1.5 million bpd.

Meanwhile, supply is expected to grow by 1.2 million bpd in 2024 and 1.1 million bpd in 2025. It should be noted that supply forecasts exclude countries that participate in the OPEC+ production cut deal.

Recently, OPEC+ was forced to postpone its planned production hike due to the weakness of the oil market. As OPEC+ cut its demand forecast, the organization will likely have to delay its production hike again to support the market.

However, there’s a problem. OPEC+ members are losing their market share day by day. At this point, the oil market is de-facto subsidized by OPEC+ countries, which keep prices higher for other producers to enjoy.

WTI oil and Brent oil are trading close to yearly lows. Geopolitical events failed to provide material support to oil markets this year. Donald Trump’s victory means that U.S. will likely produce even more in 2025.

In this environment, OPEC+ members may decide that it’s time to take their market share back from other producers and start a price war. In recent years, OPEC+ managed to maintain unity.

However, sticking to the previous strategy gets harder month by month. Oil prices are moving lower while other producers are gaining market share. At some point, OPEC+ unity may break, and its members would rush to boost production, which will be extremely bearish for oil markets.

At this point, there are no signs indicating that OPEC+ is on the brink of collapse. The leading countries in OPEC+ show that thet are determined to support the market. If oil prices move lower, the market may start to price in a potential break up of OPEC+. We are not at that point yet, but this risk is increasing month by month.

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