-Global crude oil market with risk of collapse amid slack supply/demand in 2024-

<Supply>

Supply of crude oil would unlikely tighten. Far from it, crude oil production is on the rise in the US, which might cause worldwide oversupply.

The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC, or OPEC plus, reached new agreement on Nov 30 on voluntary production cuts of 2.20 mil bbl per day (b/d) during January to March 2024. Among OPEC Plus members, Saudi Arabia and Russia would reduce production of 1.50 mil b/d. Saudi Arabia started voluntary production cuts of 1.00 mil b/d in July 2023 and would continue it until the end of March 2024. Russia would increase volumes of production cuts by 200,000 b/d to 500,000 b/d.

Nevertheless, not a few market players are skeptical about whether the voluntary production cuts by OPEC Plus would be implemented. Voluntary production cuts are discretionally conducted and some OPEC Plus members such as Nigeria are reluctant to reduce production quota. OPEC plus did not reach agreement on further production cuts that has been implemented since November 2022. "This was regarded as a proof that the members did not have the same opinions," said an economist of a major securities company.

Saudi Arabia is expected to continues moving to make the oil market stable but it would be difficult for OPEC Plus to unanimously agree on strengthening production cuts.

In addition, a rise in crude oil production in the US cannot be ignored. According to the US Energy Information Administration (EIA), crude oil production volumes reached a record high of 13.20 mil b/d in September 2023. More market players are anticipating oversupply of US crude oil.

<Demand>

In 2024, oil demand might significantly decrease. If pessimistic views about a decline in demand from major oil consuming countries are perceived, this might exert further downward pressure on the crude oil market.

China is a major player on demand for oil. In the country, the real estate sector is suffering a serious recession and disturbing an economic recovery from the situation during COVID-19. The National Bureau of Statistics of China announced that its purchasing managers' index (PMI) was at 49.4 in November, which was below the 50-point mark that separates contraction in activity from an expansion for two consecutive months. The PMI was above the 50-mark only in September after April 2023, which led to a disappointment among market players. Although Chian's crude oil import does not considerably fall, the crude oil market might come under sharp downward pressure depending on economic situation in China, which drives demand for oil.

Moreover, interest rate policy to curb inflation is expected to be prolonged in the US and Europe. The US Federal Reserve Board (FRB) began raising interest rates in March 2022. The FRB increased interest rates at nine consecutive meetings until May 2023. The European Central Bank (ECB) decided to hike interest rates at 10 meetings in a row in September 2023. Interest rates might be reduced in 2024. However, an economist of a major securities company said, "Economy would almost surely slow down in the US and Europe due to the high interest rate policy." Risks of economic slowdown remain and a scenario of a worldwide decrease in oil demand cannot be ruled out.

In November 2024, the presidential election would be held in the US. If former President Donald Trump of the Republican Party return to office, he would likely announce a number of policies to ease and abolish environmental regulations and to maximize use of fossil fuels. Hard-line diplomacy against the Middle East and enhancement of sanctions against Iran might raise oil prices sharply. Market players are paying attention to whether these factors could become tipping points for oil demand.