Current market sentiment suggests that OPEC+ is unlikely to rush into restoring production, reflecting cautiousness amid subdued global demand and concerns about a potential supply glut in 2024.
That’s what Ole R. Hvalbye, Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), said in a report sent to Rigzone on Tuesday, adding that “market participants and traders widely anticipate that the cartel will maintain its wait and see approach to avoid worsening the fragile market balance”.
“Such cautiousness could lend support to prices as the new year approaches,” Hvalbye said in the report.
“We believe OPEC+ is acutely aware of the risks associated with oversupplying the market and will likely act to stabilize prices rather than jeopardize them,” he added.
Hvalbye highlighted in the report that OPEC+ decisions, along with U.S. inventory levels and geopolitical developments, will “remain key drivers of the crude oil market”.
“These factors will shape the outlook as we move into the final weeks of 2024 and entering 2025,” he warned.
In a report sent to Rigzone late Monday by the Macquarie team, Macquarie strategists said, “should OPEC forge ahead with prior plans to increase supply”, they believe “the scales would tilt heavily towards pronounced oversupply in oil”.
“Yet, at this point, after deferring increases originally planned for October and then December, we would be surprised to see OPEC announce the return of supply for January 2025; surprised, but not shocked,” they added.
“In any event, we would find it hard not to view such a development as indicative of a further shift in OPEC strategy back towards the oft-feared ‘market share’,” they continued.
In the report, the Macquarie strategists said, “should OPEC (or principally, Saudi Arabia) opt to return supply at the December meeting, this would mark the third such shift in the past decade (at an interval of every five years) having been preceded by the November 2014 and March 2020 OPEC ‘price wars’”.
The strategists noted in the report that they maintain the view that OPEC’s decision making is not as straightforward as many believe.
“Sudden shifts in OPEC policy are seldom anticipated by the market, and we see the recent bias towards market support facing fundamental supply and demand pressures,” they added.
“All that is to say, while a hard policy shift appears unlikely at this point, we believe it cannot be altogether dismissed,” they continued.
“To this end, recent commentary from Saudi Arabia around ‘deficit by design’ for its budget could speak to a greater degree of resilience (or acceptance) of lower oil prices than we believe is widely appreciated,” the Macquarie strategists warned.
In a note sent to Rigzone by the Sparta Commodities team on Monday, Neil Crosby, Oil Analytics AVP at Sparta, said “we think OPEC+ will kick the can down the road amid uncertainty over geopolitics and the U.S. plan for Iran”.
“There is a non-zero chance (we put it at some 25 percent) of OPEC+ cutting more, at least in official numbers,” he added.
A statement posted on OPEC’s website in November revealed that Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman extended a voluntary 2.2 million barrel per day cut for one month until the end of December this year.
A statement posted on the group’s site in September revealed that those eight countries agreed to extend their additional voluntary production cuts of 2.2 million barrels per day for two months until the end of November.
OPEC+ held its last meeting on June 2. A statement posted on the group’s site that day revealed that the eight countries would extend their additional voluntary cuts of 2.2 million barrels per day until the end of September.
In a statement posted on OPEC’s website last week, the group announced that the next OPEC+ meeting had been moved from December 1 to December 5, “as several Ministers will be attending the 45th Gulf Summit in Kuwait City, the State of Kuwait”.
In a report sent to Rigzone last week, Hvalbye said OPEC+ had “introduced new uncertainties by delaying its upcoming meeting”.
Hvalbye highlighted in that report that “global demand remains subdued, leaving little room for additional OPEC+ barrels in the market”.
“The cartel appears acutely aware of the delicate balance, avoiding actions that could oversupply the market,” he added.
To contact the author, email andreas.exarheas@rigzone.com