In this interview, Nordine Ait Laoussine, international expert and former Minister of Energy, analyzes the situation of the oil market. A situation that he describes as “confused and very uncertain”. He believes that geopolitical factors no longer have the same impact on oil prices with a different context.
- How do you assess the current situation in the oil market?
She is confused, very uncertain and particularly volatile. The oil market has, in fact, taken an unfavorable turn for several months for producing countries. The barrel is traded today at a level of around 20 dollars, lower than the average price which prevailed in the middle of the year. This significant decline is essentially the result of a profound deterioration in market fundamentals. The outlook for oil demand is systematically revised downwards with the stagnation of oil consumption in OECD countries and the collapse of Chinese imports. The supply outlook, on the other hand, is revised upwards, particularly outside the countries of the OPEC+ Alliance.
- The analyzes contradict each other in terms, in particular, of prospects linked to the progression of global oil demand for 2024/2025, in view of the latest monthly reports from OPEC and the IEA. What do you think?
We are used to the differences of views between OPEC and the IEA on the oil situation: they are congenital. It must, however, be recognized that the analyzes of the OPEC secretariat are in contradiction not only with those of the IEA, but also with the majority of prospective studies published by international institutions and the specialized oil media.
Looking ahead to the current year, the OPEC Secretariat still expects demand to increase by nearly 2 million barrels per day (mmbd), as the industry prepares to close the fiscal year with an increase of less than 1 mmbd.
As for the outlook for global demand in 2025, the OPEC secretariat expects an increase of around 1.6 mmbd, almost double what is projected today by the majority of countries. oil analysts.
- Geopolitical factors no longer seem to represent an upward factor for black gold prices, as was the case a few years ago. What analysis do you make of the current situation, given the developments in the Middle East region and its impact on prices?
It is true that geopolitical factors have, in the past, temporarily influenced the trajectory of oil prices, both up and down, driven by speculator activism. This influence was significant during risks linked to a possible interruption of supply occurring or coinciding with a tight market.
This is not the case today, because the context is different: the market is adequately supplied with practically stagnant demand in the OECD, comfortable stocks, excess production capacity within the OPEC+ Alliance and the prospect of a relaxation of production reduction measures envisaged by the members of this alliance.
That said, a significant escalation of tensions in the Middle East could cause an oil shock that could further destabilize the market pending a resolution to the Palestinian crisis and the invasion of Lebanon.
- OPEC recently refuted information reported by the Wall Street Journal (WSJ)according to which the Saudi Minister of Energy warned OPEC+ members of a potential drop in the price of oil, to $50 per barrel, if they did not respect agreed production cuts. What reading do you make of this information and others banking on Saudi Arabia's desire to deviate from the OPEC+ strategy to favor its market shares?
OPEC's denial constitutes an answer to this question. I would add that the non-compliance with the agreed production cuts, to which the Wall Street Journal article alludes, is exaggerated. It only concerns 3 members of the alliance: Iraq, Kazakhstan and Russia to varying degrees. These overruns were identified and were the subject of a compensation agreement, currently being applied, with a view to absorbing the surplus at the end of 2025. In my opinion, the system put in place by the alliance in 2023 has led to a notable improvement in production discipline.
That said, OPEC finds itself confronted with a more fundamental question: the effort to stabilize the market, at a relatively high price, has led for some time to stagnation if not to the decline of the demand for OPEC oil, it is that is to say the expected residual level of its production to ensure market balance and therefore the defense of its reference price.
After the Covid-19 health crisis, OPEC oil demand rebounded in 2021 to reach 27.5 mmbd (Angola excluded). It remained at this level in 2022 and 2023. With the exception of the Organization's secretariat, the majority of analysts expect a marginal decline this year and a doubtless substantial decline next year around 26 mmbj (according to the latest outlook from the IEA or the US Department of Energy).
Meanwhile, member countries not subject to reduction decisions (Iran, Libya and Venezuela) have overall increased their production by 1.2 mmbd since 2021. In other words, the oil demand of the 9 OPEC members (engaged in reduction measures) is now clearly in decline compared to 2021.
In the longer term, the situation is likely to worsen as analysts expect the increase in global demand to plateau at around 1 mmbd and a continued increase in non-OPEC production of liquid hydrocarbons. from 1.5 to 2 mmbd. By striving to stabilize the market with Brent at $80 per barrel, OPEC is in fact encouraging the majors to increase their production.
Since the Paris Agreement, OECD producers have increased their production by around 7.2 mmbd, while during the same period, OPEC experienced a decline of around 3.2 mmbd, a period during which global demand increased by 5 mmbd. In other words, for every barrel that OPEC intentionally left in the ground, nearly 3 barrels of additional non-OPEC production fueled the market.
Analysts are more concerned today about the horizon of “peak oil demand”, while the “peak” of OPEC oil demand is already there. In my opinion, OPEC must prepare to change course: its role as “swing producer” or backup producer risks, in the long run, becoming unsustainable in a declining market.
