Another is that as the global economy has slowed,andChina’s economy in particular,demand growth for crude oil and refined products has also slowed.

Global growth is expected to come in at about 3 per cent this year and be slightly less than that in 2024 (and lower again for the advanced economies),with the balance of risks within the outcomes weighted towards the downside because of latent geopolitical and financial system risks.

A bigger factor,however,is the increased production from non-OPEC+ producers,particularly the US,where shale oil producers have responded to OPEC+ reduced production by lifting their own. Brazil,which has been invited to become a member of OPEC+ but says it won’t agree to production quotas,and Canada are other big producers that have been lifting their output.

US oil production is running at record levels of around 13.3 million barrels a day,with exports of nearly 6 million barrels a day close to record levels.

The shale producers,under pressure from shareholders in recent years to improve their returns by investing less capital in expanding their drilling programs,have achieved their increased production more by increasing the productivity of existing wells rather than expanded footprints.

The recent large-scale consolidation of the US oil sector – Exxon’s $US60 billion ($91.5 billion) acquisition of Pioneer Natural Resources and Chevron’s $US53 billion purchase of Hess Corp (with assets in Guyana,the Gulf of Mexico and the US shale oil and gas basins) – says that the oil reserves and output controlled by US producers are increasing.

Exxon has been quite explicit in saying it plans to ramp up investment and output next year,announcing budgeted capital expenditures of between $US23 billion to $US25 billion for 2024. Chevron has said it will increase its spending by about 11 per cent next year,to between $US18.5 billion and $US19.5 billion.

The big US producers,along with the other majors like Shell and BP,while remaining committed to “net-zero” by 2050,along with other intermediate goals,are betting on demand for their oil remaining stronger for longer,aided by the big reductions in the industry’s investment in new production that have occurred in recent years. They’ll happily fill any production vacuum OPEC and its affiliates create.

Oil prices that are at their lowest levels since June might not be sustained if economic growth turns out to be stronger than anticipated,although the three big economic regions – the US,China and Europe – are all slowing as the US and European economies respond to the rise in their interest rates to combat inflation and China wrestles with its internal structural challenges.

With some OPEC+ messaging that the increased cuts to production could remain in place beyond the first quarter of next year,and could even be increased,the cartel could still regain control of the price next year,albeit that it would significantly benefit non-OPEC+ producers and provide incentives for them to increase their production further and faster.

The core of OPEC will be mindful that they,particularly the Saudis,are losing market share every time they increase or extend their cuts. There will be a moment where,in the absence of significant demand growth,there will be pressure to significantly lift their output to try to regain the share they are gifting non-OPEC+ producers.

They have to balance that against their experience in 2014 when the oil price broke through $US100 a barrel and created a massive increase in US shale oil production.

OPEC tried to crush an emerging threat to its dominant influence over the market by increasing production,which drove the US West Texas Intermediate crude price down below $US65 a barrel.

All it succeeded in doing was generating survival-driven incentive for the US shale producers to improve their technology,productivity and deployment of capital.

The core of OPEC will be mindful that they,particularly the Saudis,are losing market share every time they increase or extend their cuts.

Lower costs and more productive wells have made the US producers far more resilient and far more formidable competitors and far less vulnerable to any OPEC+ efforts to drive them from the market or win back share,while the expensive efforts of the Middle Eastern producers to diversify their economies away from their reliance on oil mean they will be reluctant to sacrifice more revenue to try to regain that share.

The other factor in the outlook for oil is whether the G7 (and Australia) try to make their sanctions on Russian oil exports – designed to maintain the volumes but reduce the revenue Russia receives via a $US60 a barrel price cap – more effective.

With more than half of Russian exports now carried on its own ageing fleet of tankers and selling its oil above the price cap,the US has finally started sanctioning ships and ship operators found to be aiding the circumvention of the cap and querying many more.

More willneed to be done if the original intent of the sanctions is to be effected,which could influence both the price and – if the West is really determined to choke the revenues Russia needs to finance the war in Ukraine – even the volume of Russian oil entering the market.

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