Delayed OPEC+ Output Hike Shows Soft Demand Reality: Russell

Geopolitical uncertainty will probably garner the lion's share of the blame for OPEC+'s decision to once again delay raising crude oil output, but weak demand, especially in Asia, is more significant.

Eight members of OPEC+, which groups the Organization of the Petroleum Exporting Countries plus Russia and other allies, pushed back their planned increase of 180,000 barrels per day (bpd) in December by another month, they said in a statement on Sunday.

The group had been due to raise output in December as part of a plan to gradually unwind a total of 2.2 million bpd of production cuts over 2025.

The decision to delay raising output was largely expected, given the crude oil price is still trending lower, albeit with increased volatility because of the conflict in the Middle East, which has seen major players Israel and Iran trade attacks on each other.

Global benchmark Brent futures ended last week at US$73.10 a barrel, having dropped as low as US$71.08 earlier in the week.

Brent opened higher in early trade in Asia on Monday, rising as much as 2.5% to US$74.94 a barrel, before easing to trade around US$74.16.

However, the contract is still down almost 10% from its most recent peak of US$81.16 on Oct. 7, and has been in a weakening phase since the high this year of US$90.92 on April 11.

The main reason for the declining oil price trend is that demand in Asia has disappointed the bullish forecasts made earlier this year by OPEC and other forecasters.

The run of soft numbers from Asia, the top crude importing region, with LSEG Oil Research estimating October arrivals at 26.74 million bpd, down from 27.05 million bpd in September.

For the first 10 months of the year, Asia's crude imports were 26.78 million bpd, down 200,000 bpd from the same period in 2023, according to LSEG data.

OPEC FORECASTS

The weakness in Asia's imports stands in contrast with OPEC's forecasts for the region's demand growth, even though the producer body has been trimming its expectations in recent months.

OPEC's October monthly report forecast that Asia's crude oil demand growth would be 1.2 million bpd in 2024, led by 580,000 bpd in China and 270,000 bpd in India.

But the decline in Asia's imports for the first 10 months of the year makes it extremely unlikely that demand growth will be anything near OPEC's forecast, and this is perhaps the key reason why crude oil prices have trended softer in recent months.

While the risks of escalation in the Middle East remain heightened, so far there has been no real threat to the region's crude oil infrastructure and exports, with the only exception being limited missile attacks on shipping in the Red Sea by Yemen's Iran-aligned Houthi militants.

There is also the risk of the potential return of Donald Trump to the U.S. presidency, which may raise tensions with Iran as well as harm the global economy through his planned imposition of tariffs on all imports to the United States, with especially punitive rates against China.

Given the backdrop of geopolitical uncertainty and weak crude imports in Asia, the only logical step for OPEC+ was to delay increasing output.

The ideal situation for the group would be for the tensions to ratchet lower, while at the same time China's economy responds positively to Beijing's stimulus measures, and the rest of the global economy shows increasing signs of recovery.

This will lead to higher crude demand and allow for OPEC+ to unwind its production cuts.

But for now the positive scenario remains an unrealized possibility, while the reality is geopolitical risks and weak demand in Asia.

The opinions expressed here are those of the author, a columnist for Reuters.