【MACRO Alert】Oil market outlook analysis: OPEC+ production decisions and geopolitical risks

In the global oil market, traders are divided over whether OPEC+ will resume production in December as planned. The alliance, led by Saudi Arabia and Russia, plans to increase production by 180,000 barrels per day per month starting in December, gradually restoring supply that has been suspended since 2022. However, producers have postponed the restart plan, which was originally scheduled to start in October, due to weak oil demand and increased production from competitors. Traders and analysts surveyed by foreign media are not optimistic about whether the alliance is ready to act now. Of the 30 respondents surveyed, 16 predicted that OPEC+ will choose to postpone the increase in production. The organization needs to make a decision in the coming weeks to inform customers in a timely manner.

Oil prices have fallen 18% since early July to around $72 a barrel, a price that is too low for many OPEC+ members, such as Saudi Arabia, to cover government spending. “The biggest problem for oil demand is Asia, and that puts OPEC+ in a bind,” said Henning Gloystein, head of energy and climate at consultancy Eurasia Group. The International Energy Agency (IEA) estimates that oil demand in Asian countries has shrunk for four consecutive months, causing global oil demand growth to fall to its lowest level since the outbreak of the epidemic in 2020. The IEA expects demand growth of about 1 million barrels per day (about 1%) next year to be offset by a supply surge of 1.5 million barrels, which will plunge the world market into a new supply glut.

Citigroup and JPMorgan Chase expect oil prices to fall to the $60 range next year, and could go even lower if OPEC+ opens the taps. That poses a financial threat to Saudi Arabia, which needs oil prices closer to $100 a barrel to pay for Crown Prince Mohammed bin Salman's grand economic plans, according to the International Monetary Fund. Saudi Energy Minister Prince Abdulaziz bin Salman has often urged the group to be cautious in adding output to the market.

Meanwhile, Standard Chartered Plc believes that the oil market has “relaxed too quickly” on Middle East risks, and renewed hostilities between Israel and Iran after the U.S. election could boost oil prices. The bank‘s analysts pointed to the two months before the Jan. 20 U.S. presidential inauguration as a potential “window of intensification.” Crude oil prices posted their biggest drop in more than two years on Monday after Israel’s latest retaliatory strike on Iran avoided the OPEC producer‘s energy infrastructure. The targeting has both reduced concerns about the immediate risk to crude flows and shifted investors’ attention to expectations of a deterioration in the global oil supply and demand balance by 2025.

“There has been a tendency over the past year for markets to act as if every escalation in geopolitical risk in the Middle East is a downgrade,” the analysts wrote. “For now, Israel appears to have failed to accomplish many of its objectives in Iran, and the scope for further action is likely to expand significantly once the U.S. election vote is over,” they said. Standard Chartered forecasts global benchmark Brent crude oil prices at $89 a barrel and WTI crude oil prices at $86 a barrel in the first quarter of 2025.

The removal of the Middle East war premium has put weak fundamentals back in focus, including weak demand and ample global supply. OPEC+ plans to gradually restore production from December, and traders are divided on whether the alliance will proceed with the plan. “The focus remains largely on the removal of the war premium and whether OPEC+ will continue with its production increase plan,” said Robert Rennie, head of commodities and carbon strategy at Westpac Banking Corp. He added that Brent oil prices are expected to test the $60 area in a “short period of time.”

Commodity and financial markets are preparing for two big events next week, including the U.S. election and whether China will take further stimulus measures. Currie added that the market outlook facing the group ultimately depends on the outcome of the U.S. presidential election on November 5. He said: “The real geopolitical risk has not yet arrived, that is the shock wave brought by the U.S. election. This will touch the most vulnerable points around the world.”

In summary, the oil market is facing complex challenges, including weak demand, concerns about oversupply, uncertainties in geopolitical risks, and changes in global economic policies. OPEC+ decisions, tensions in the Middle East, and the dynamics of the global economy will have a profound impact on oil prices.