The summary of the OPEC+ meeting on Sunday is:
- The organization agreed to extend cuts of 3.66 million barrels per day for one year until the end of 2025 (they were scheduled to end at the end of 2024).
- Agreement to extend cuts of 2.2 million barrels per day for three months until the end of September 2024 (they were scheduled to end at the end of June 2024).
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OPEC+ will phase out the cuts amounting to 2.2 million barrels per day over a year from October 2024 to September 2025.
On the face of it, OPEC+ has laid out a clear plan to gradually taper the voluntary cuts (OPEC+ has inserted a caveat, which is, in short, “subject to market conditions”). This should result in a tighter first half of 2024 and first half of 2025 than expected. On the demand side, it is on the rise, especially with the Chinese economy gradually improving (emphasis on gradualism, it's a bumpy road as May PMIs indicated on Friday):
- OPEC+ estimated that demand for oil will rise this year by 2.2 million barrels per day
However, Goldman Sachs says the outcome of the meeting is bearish for the price of oil, and says Brent is at risk of falling from its estimated range of $75 to $90 per barrel.
- “While a clear production plan further reduces the possibility of an outright price war and supports the idea that crude oil prices will be range-bound, risks to the range itself are now tilted towards the downside.”
Quoted by GS:
- Planned production cuts are not enough to limit the oversupply of oil
- The OPEC+ agreement on Sunday allows eight countries, including Saudi Arabia, the United Arab Emirates and Iraq, to gradually increase production until the end of 2025.
- GS estimates demand growth at 1.5 million barrels per day, well below OPEC+ estimates
Goldman Sachs disputes OPEC+ warning that the increase in production “could be paused or reversed depending on market conditions”:
- “We are surprised that these countries are now announcing a detailed reduction schedule in the context of recent bullish surprises for inventories.”
- “Announcing a surprisingly detailed hypothetical plan to undo additional cuts makes it difficult to maintain low production if the market turns out to be weaker than OPEC’s bullish expectations.”
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This week's oil futures trading begins at 6pm EST. Love your seatbelts.
