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Global oil in softening mode: Bonanza for India
Global oil prices have been softening for the past two months despite continuing geopolitical tensions. The phenomena of lower prices has defied predictions by investment agencies that had forecast oil skyrocketing in 2024. Instead, 2023 is ending with oil markets in bearish mode and the benchmark Brent crude being quoted at a low of 75 dollars per barrel. Unless the situation alters gravely over the next six months, it looks as if Goldman Sachs’ gloomy expectation of crude soaring to 100 dollars per barrel by the end of next year has little chance of becoming a reality.
The current depressed state of oil markets comes after the peak of mid-October when prices had touched 92 dollars per barrel. This was a reaction to the decision by Saudi Arabia and Russia to extend their voluntary output cuts of 1.3 million barrels per day (bpd) for another three months. The momentum of higher rates could not be maintained in the following weeks due to several factors.
The first is the failure to maintain production quotas by members of the oil cartel now known as the Organisation of Petroleum Exporting Countries Plus due to the addition of Russia and other allies to the group. Several members have been exceeding their listed quotas including Iran and Venezuela which are exempt due to the sanctions. Other countries like Angola and Nigeria have felt the need to produce more oil to generate enough revenues for their exchequer.
The differences within the cartel came to light at the recent OPEC plus meeting where African producers were reported to be concerned over the proposed output cuts of 2.2 million bpd scheduled for the first quarter of 2024. The latest visit of Russian President Vladimir Putin to Saudi Arabia indicates the growing concern of OPEC+ leaders over the inability of the cartel to operate as a cohesive unit.
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