Oil prices could crash 50% if OPEC+ lets output rise and doesn't extend cuts through 2024, Citi commodities research chief says

• OPEC+ will have to maintain its oil production cuts in 2024, Citigroup's Max Layton told Bloomberg TV.
• Abandoning the policy could send oil prices plunging as much as 50%.

Oil prices could face a severe plunge next year if OPEC+ producers were to abandon their current production cuts, Citigroup's global head of commodities research, Max Layton, told Bloomberg TV.

The Organization of Petroleum Exporting Countries is planning to cut oil output by another 900,000 barrels a day in the first quarter of 2024, on top of previous pledges from this year. If member countries work together to maintain these quotas, oil prices could balance around a $70-$80 per barrel range, Layton said, the global head of commodity's research.

But if OPEC's spare capacity comes back online, oil markets could drop between 30%-50%, he added — a scenario the organization isn't eager to test.

"I think the alternative is just so painful, that it's most likely you get this kind of half a million barrels a day cut through the course of next year at the right price," he said.

This year, declining global demand and a surplus in oil supply have been the leading pressures on crude prices. Through 2024, Layton expects this to continue, with an overall surplus of around 600,000 barrels a day.

While Layton holds expectations of some demand recovery in China, other analysts have cautioned that China's ongoing economic malaise could actually cause global growth to sharply decline, encouraging OPEC to further limit oil output.

"Weak global growth in 2024 could prompt further OPEC+ cuts if the oil market shifts decisively into surplus, but the latest deal at end-November 2023 highlighted reluctance to bring output much lower," Fitch Ratings said. The ratings agency expects global growth to drop 2.1% next year.

Yet others have suggested that OPEC+ could abandon its production curbs in the near term and flood the market with supply in order to blunt the growing competitiveness of US producers.

As strong output from the West has lowered the impact of the OPEC cuts, allowing price to drop would "bankrupt" the US industry, market veteran Paul Sankey told Business Insider.

"I think to be specific, it's a market share war," he said.

However, such a move could also blow back and hurt the oil cartel, with some member countries requiring higher oil prices to cover government spending.