OPEC vs Non-OPEC – The Upcoming Year
Jan. 5, 2024
The new year has the potential to feature a shifting dynamic between OPEC and non-OPEC producers. OPEC+ garnered much attention with significant production cuts during the course of 2023. The de-facto leader, Saudi Arabia also extended their voluntary cut of 1 million b/d that had previously been announced in June. They cited weakness in oil prices driven by financial speculators and also concern over the forward-looking economic outlook as part of the rationale. This sets the stage for more geopolitical volatility headed into 2024, usually a good omen for tanker owners. To this effect, the markets will also be keeping a close eye on Brazil, which surprisingly is considering joining OPEC+, perhaps in a reduced role. Brazil’s output has been growing steadily in recent years and averaged 3.6 million b/d of supply in the fourth quarter of 2023 (Kpler).
With OPEC+ supply being constrained, we note several countries stepping up their efforts to fill the supply gap. The US has kept up their strong output numbers although higher breakeven costs and recent consolidation change the growth trajectory. According to Kpler, US crude production growth is projected at 321,000 b/d in 2024 versus 2023 (annual average), compared to growth of 1 million b/d between 2023 and 2022, while crude demand is forecast to remain relatively flat during 2024. This would widen US crude balance, from a top level, and give the US the ability to potentially export more of its light, sweet crude overseas. However, this is also contingent on US imports of foreign crude oil remaining steady, a scenario which is looking less likely as Mexican and Canadian crude find alternative markets, while whether Venezuelan sanctions remain lifted and their ability to increase production are uncertainties.
Figure 1: Annual Crude Supply Growth
Source: Kpler, JBC
Guyana marks another bright spot in terms of new oil supply from a non-OPEC producer. This will provide a tailwind for the Suezmax (and to a lesser extent VLCC) segment(s) headed into 2024 as the third FPSO (Prosperity) began operating in Guyana in mid-November, adding 220,000 b/d of production at the Payara field. The rapid increase in crude supply and exports will further support Suezmax demand to Europe and to the US West Coast, notably Chevron’s refineries. Flows to Asia are traditionally shipped by Suezmax to East Coast Panama followed by a VLCC from West Coast Panama to China. Chevron’s announcement to buy Hess for US $53 billion will give the US supermajor access to Guyana’s 11 billion barrels of offshore oil. The unusually fast ramp-up in the country could push production to 1.2 million b/d by 2027 (Financial Times), equivalent to approximately one-third of Exxon’s current daily production. While on the balance, Guyana is a positive for tanker demand, one negative consequence is likely to be reduced VLCC volumes from AG to the US West Coast, as refiners shift their diet to a blend of Canadian and Guyanese crudes.
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