Analysts Warn of Potential Strain on Oil Market as OPEC+ Prepares for October Production Hike

Global oil demand growth needs to pick up pace in the coming months to accommodate the planned increase in oil production by OPEC+ from October, according to analysts and industry sources. If demand growth does not accelerate, the market may face challenges in absorbing the additional supply, potentially leading to lower oil prices or a delay in OPEC+’s production plans.

In the first seven months of 2024, oil demand growth in major consumers like the United States and China fell short of expectations, raising concerns about the market’s ability to handle increased production. The threat of a US recession and the ongoing economic slowdown in China have further compounded these worries.

Gary Ross, CEO of Black Gold Investors, noted that in the current economic environment, with a significant risk of recession, it is unlikely that OPEC+ will proceed with the planned production increases. The price of oil has already fallen below $80 per barrel in August, a level that is insufficient for many OPEC+ members to balance their budgets.

The demand outlook for the rest of the year remains uncertain, with varying forecasts from OPEC and the International Energy Agency (IEA). OPEC estimates a global demand growth of 2.15 million barrels per day (bpd) in the first half of 2024, while the IEA estimates it at just 735,000 bpd. For OPEC’s full-year demand prediction to hold, demand growth would need to accelerate significantly in the second half of the year.

OPEC+ pumps over 40% of the world’s crude, and its planned production increase is based on the assumption that global demand will rise as forecasted. However, if the demand growth fails to meet expectations, OPEC+ may be forced to reconsider its strategy, either by delaying the production increase or accepting lower prices for the additional supply.