Publications: Notes at the Margin

Who Will Buy My Oil? (November 18, 2024)

 

Oil-exporting countries, particularly the OPEC+ members, confront an increasingly difficult problem: selling their crude. This is not the first time. Forty years ago, the OPEC nations faced declining oil demand. Their production dropped from twenty-nine million barrels per day in 1980 to seventeen million barrels per day by the end of 1984. Saudi Arabia absorbed much of the decrease.

 

At the same time, non-OPEC output rose fourteen percent from thirty-seven million barrels per day to forty-two million barrels per day. Prices eventually collapsed when the Saudis abandoned their effort to sustain high prices. The Kingdom’s output fell from ten million barrels per day in 1980 to just 3.6 million barrels per day in 1985. Through the first half of the decade, OPEC producers repeatedly called on refiners to buy more of their oil. Integrated companies such as BP, Exxon, Mobil, Texaco, and Shell refused, citing increases in their own production.

 

Today, OPEC+ members are in a similar squeeze as non-OPEC output rises. The impact of that rise is magnified by the economic stagnation in China, the organization’s largest buyer, and the prospect of a coming trade war. The United States’ role as a large oil and natural gas exporting nation will put increasing pressure on the group.

 

As noted here last week, commodity-exporting countries almost always lose trade battles—almost always. Many observers believe the US economy will thrive in a war now as most other economies suffer. In particular, many project a stronger dollar to exacerbate the war’s impact on emerging market economies.

 

Going into 2025, a key question for oil market participants is whether OPEC+ will keep ceding market share by cutting production as global use stagnates and non-OPEC nations continue to boost output.

 

To receive the full report along with future issues of Notes at the Margin, please Contact Us or send us an Information Request for subscription information.