“Saudi Arabia’s OPEC+ Management Has Been a Notable Accomplishment!”

Dr. Karen Young , Senior Research Scholar, Center on Global Energy Policy, 美国哥伦比亚大学

Saudi Arabia’s oil exports are currently low, at about 7.5 million barrels a day, but the kingdom’s revenue share is seeing a slight uptick, which suggests that its OPEC+ strategy is working. In the bigger picture, Saudi Arabia has been surpassed by the US and Russia as the top two global exporters; regaining one of those top positions is likely a medium-term strategy, but it’s not a priority right now. The enforcement of sanctions on both Iran and Russia hasn’t had the expected impact, leaving OPEC+ to maintain unity among its members, which is a significant achievement given the tensions, particularly between Russia and Saudi Arabia, as well as intra-GCC competition. Iraq’s non-compliance with production cut agreements also complicates matters. Despite all these challenges, Saudi Arabia has managed to instil some discipline among producers, a notable accomplishment, even if there’s been a price to pay. The 3% year-on-year projected decline in Chinese demand is also a significant concern, especially since it’s unclear what could reverse this trend. However, China has ample storage capacity, so even if demand weakens, they could stockpile oil. But the outlook isn’t great; some analysts suggest that a severe decline in Chinese demand could lower oil prices by $6 to $9 per barrel. Gulf states like Saudi Arabia are also closely tied to China, not only as a major oil and petrochemicals customer, but also as a key partner and investor in their economic diversification efforts.

Is the negative trajectory of oil prices impacting Saudi’s Vision 2030 plans?

Traditionally, we focus on the breakeven price in a government’s budget, and there’s been coverage recently, suggesting that this number for Saudi Arabia is now approaching $120 a barrel. That’s quite a high breakeven price considering current global oil prices. However, Saudi’s strategy is increasingly reliant on debt, and they have good access to debt markets. They’re on their fourth bond issue from the Public Investment Fund this year alone. The number of entities, including state-owned or state-related entities within Saudi Arabia, that can borrow on their own balance sheets, is quite significant. I believe they will continue to use this strategy to fund economic diversification initiatives, including the giga-projects, until they reach a point where they feel they’ve created the growth and momentum they desire. This has always been part of their plan.

Why has foreign direct investment into the kingdom disappointed thus far?

It’s a gradual process. They need a geopolitical landscape that is more conducive, something they’ve been working on, especially in their bilateral relationship with the US. However, their relationship with China complicates this. It will be a challenge, particularly in their ambitions to manufacture solar panels and electric vehicles, because their key FDI investment partner in these areas is China. If we see a Harris or a Trump administration pursue an industrial policy that is anti-China - such as tariffs on all Chinese EVs, even those made in third countries - Saudi Arabia might view this as misaligned with their EV manufacturing plans.

Where do US-China relations stand today?

There have been some interesting developments recently, like National Security Adviser Jake Sullivan meeting with the Chinese premier, which signals a diplomatic effort and an increase in communication channels. However, the US has deployed more aircraft carriers to the Middle East, which detracts from its force posture in the Asia-Pacific, and that is a concern for the Defence Department. It would be a particularly bad time to escalate tensions with China over Taiwan, for instance.

How does the US view China’s role in Middle East diplomacy?

It doesn’t see this as very constructive. There was no strong objection when China hosted a meeting between Iran and Saudi Arabia in 2023, but beyond that, China hasn’t been particularly helpful. For instance, Chinese vessels pass through the Red Sea without much threat from the Houthis, benefitting from the security umbrella the US provides in the region, so there’s an inequity from the US security perspective.

Could we see a tougher US policy on Iran if Trump wins in November?

How the US might enforce sanctions on Iran, particularly regarding Chinese imports of Iranian crude, is crucial. Legislation passed in April allows the US to sanction Chinese ports, refineries, and financial institutions involved in this trade, but enforcement has been lax. Trump has stated he would take a tougher stance, but it’s unclear how that would unfold, especially considering his promise to lower domestic gasoline prices to around $2.50 a gallon, which contradicts a stricter enforcement of sanctions. Any US politician will face the challenge of balancing enforcement with the need to keep domestic energy prices low, especially as both candidates focus on reducing costs for consumers, not just in energy but also in essentials like food.

How might the US election outcome impact the country’s domestic energy policy?

Clearly, since 2022, there’s been more consensus on energy security. However, whether it’s Trump or Harris as president, there’s not much a US president can do to significantly increase production. They might not make policies that make it harder or might remove policies that do, especially on federal lands, but they can’t fundamentally change the market players’ incentive structures. We might see a continuation of current momentum, with perhaps a Trump administration relaxing the pause on new LNG commercial facilities and exports. But generally, we’ll likely see broad support for US energy production from either candidate. Both are also likely to support many programs passed within the Inflation Reduction Act, such as investments in renewable energy, including green hydrogen. These incentives will probably continue because they’re popular, even in Republican or purple states.

How much progress are Gulf oil producers making on the Energy Transition?

There’s certainly an understanding that the market for oil, particularly for petrochemicals and refined products, will persist for a long time. However, there’s been a significant shift towards wanting to be part of the international gas market. NOCs like ADNOC and Aramco are now more focused on international gas assets and using gas for domestic power, replacing crude oil burns, and being more innovative overall. There’s also been considerable investment in carbon capture and sequestration, driven by the realization that future consumers will demand cleaner oil products. The carbon footprint of oil will matter; we’re already seeing a divergence among OPEC+ producers, with countries like Saudi Arabia and the UAE likely to have the cleaner, higher-tech products ten years from now, while others, like Iraq, Iran, and Libya, lag behind.

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Dr. Charles Ellinas	     	         		          		         	         
CEO, Cyprus Natural Hydrocarbons Co. & Senior Fellow, 
Global Energy Center – Atlantic Council        

Egypt is desperate for gas and its economy is in dire straits.

The country owes oil and gas companies around $6 billion, and so, many have halted development of new projects to increase production. Chevon has paused production at Egypt’s largest gas field because they’re uncertain about getting paid. Similarly, ENI promised in April to develop gas fields in Block 6 in Cyprus but has done nothing since, again due to payment uncertainties if they send the gas to Egypt. Egypt’s production has been steadily declining over the past three years, down by 30%, and it continues to drop, so it has been forced to import gas. Initially, LNG imports were expected to be a temporary measure over the summer, but now they’ve extended into winter, which is very worrying. These imports are draining Egypt’s economy since they must pay for the LNG in foreign currency, which they are severely lacking. But without these imports, power cuts will worsen and continue.

How are European economies faring with energy costs and inflation heading into Q4?

Germany is in serious trouble, as is France. Germany’s industrial output has declined by 15% over the past three years and continues to fall rapidly, with no clear solution in sight. Even Volkswagen is closing its factories there. Still, I don’t foresee the economy falling into recession. The European Commission is expected to concentrate primarily on the economy, trade, and defense over the next five years, with green issues taking a lower priority. Overall, I see Europe gradually recovering, but much depends on what happens in Germany and France. Italy and Spain are doing relatively well, and the UK is seeing optimism with its new government. In terms of gas consumption, that has reduced dramatically, almost 30% in three years, primarily due to declining industrial production, and that will continue. The continuous rise of renewables has also played a role; low-carbon energy now provides more than 50% of Europe’s electricity.

Maleeha Bengali     	         		          		         	          
Founder, MB Commodity Corner        

China is undergoing a massive deleveraging process.

It started after COVID in 2022 and while they’ve tried injecting liquidity, it only seems to ever have a temporary effect. The West has always expected a big stimulus package in China that would save the global economy, but China has repeatedly made it clear that they’re not going down that path. Their new economy is focused on the domestic consumer, and they’re grappling with a lot of debt and a property bubble. Chinese demand is simply too weak and that’s not being fully priced into the market. The commodity markets have been in a consistent downtrend. Look at copper prices and oil prices. OPEC’s numbers on oil demand are completely off. Chinese demand has been lower by 300,000 b/d this year, whereas OPEC was expecting an increase of 700,000 b/d. The deflationary scenario in China has also allowed the US Fed to manage their disinflationary cycle, which has supported the US economy, but we believe the situation there is worse than it appears. We’re not just worrying about inflation in the US anymore, but rather the potential for a recession.

Is it time for OPEC+ to open the taps and squeeze out higher cost producers?

By maintaining these cuts, they’ve been helping non-OPEC supply growth. That said, it would be a risky move right now because OPEC+ has lost some face and credibility. They could try this strategy, and maybe oil at $40–$45 is closer to fair value, but certainly not at $70–$80 with the current demand levels. However, right now, the market still seems to believe in a “soft landing”, and OPEC is taking its cue from that. But if the financial markets worsen significantly, they may have no choice but to act, as they ultimately need oil prices above $90 in the long term. The complication today is that it’s a bit of a chicken-and-egg situation with the Fed and the US economy. We’re in a very narrow window with no liquidity and the Fed can only cut by 25 or 50 basis points this side of the year, while the US consumer is struggling to pay bills. Where is the demand that we keep talking about? It’s not materializing.

Matthew Wright   	         		          		         	         
Senior Freight Analyst, Kpler        

What are tanker rates telling us about the current demand for oil?

Summer is always a weak period for tankers, but this year was particularly so, especially compared to where we were in the spring. One interesting trend is the record number of VLCCs and Suezmaxes, switching over to the clean products market. In August, we saw record volumes of clean products being shipped on tankers - over 30 Suezmaxes and about 10 VLCCs - which is an unprecedented number. You don’t see this happen if the crude market is in good health. Earlier this year, at the height of the Red Sea crisis in February and March, most people thought that dislocation would keep the freight market elevated for as long as the crisis persisted. But while the situation in the Red Sea continues, freight rates have really dropped. We’re nowhere near the levels seen in 2021, but it’s not looking like a strong winter period for freight. However, as we move into Q4, which is typically a stronger period, I don’t expect the switch to the clean market to continue.

How has the market interpreted the OPEC+ move to postpone supply increases?

Everyone agrees that it was the right decision. The situation in terms of market balance likely won’t be much different by early next year, and we’re still expecting a bit of excess supply moving into 2025. OPEC+ is essentially waiting for a decline in non-OPEC supply, particularly from Brazil, the US, and Ghana. If they bring back volumes while non-OPEC production remains high, it could accelerate the situation, pushing prices even lower. At the same time, I don’t expect further cuts from OPEC+ as it’s contrary to their current agenda, but we may see additional postponements of supply increases.

Michelle Wiese Bockmann	     	     	         		          		         	Principal Analyst, Lloyd’s List Intelligence        

There’s no indication yet that tanker rates will be strong in Q4.

It’s traditionally the strongest quarter because of higher demand from refineries, particularly in Asia, as they ramp up production of gasoil for the northern hemisphere winter. But forward rates indicate that sentiment isn’t very high with demand growth for 2025 expected to be around 1 million b/d. In Europe especially, diesel demand has probably peaked, and now, for the first time, we’re seeing suggestions that diesel demand may be peaking in China as well. However, the tanker sector is also influenced by ton-mile demand, which has remained high due to the recalibration of oil trades from Russia and the situation in the Red Sea, keeping rates higher than you’d normally expect under these market conditions.

Is the market paying much attention to sanctions?

One key thing to watch with falling oil prices is whether discounted Russian grades drop below $60, and for Urals, we’re probably getting very close. I’ve always maintained that the oil price cap isn’t effective. While it may have reduced Kremlin revenues due to the discounted crude, and while Western regulators have intensified their enforcement efforts, there’s been little impact on stopping supply. Overall, we see about 7 million b/d of sanctioned crude being shipped, which represents about 17% of seaborne trade. Interestingly, China is increasing its share of sanctioned crude imports, with 27% coming from Iran, Venezuela, or Russia.

How much of a concern today are Houthi attacks on ships in the Red Sea?

What’s becoming clear is that the Houthis are very carefully targeting specific tankers. The most recent incident involving the Greek-owned tanker will I believe, push Western and European owners, operators, and charterers to reconsider sending their ships through the Red Sea. In the 83 incidents we’ve tracked, not a single Russian-owned tanker, and only two Chinese-owned vessels, have been attacked. The Houthis are becoming more selective, and that will influence future transit decisions.

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