In an oil and gas report sent to Rigzone last Friday, Macquarie strategists highlighted that, ahead of the upcoming OPEC+ meeting on June 1, “consensus appears to have gravitated toward a rollover of existing OPEC+ voluntary cuts”. The strategists added, however, that they think it’s “too early to make such assertions with confidence”.
“We … believe the status of Saudi Arabia’s one million barrel per day ‘lollipop’ cut remains paramount and see a complicated decision surface for KSA [Kingdom of Saudi Arabia] to navigate,” the strategists said in the report.
“Further, while we are generally loathe to doubt Saudi compliance, we see some potential that supply to market has already increased in recent months,” they added.
“While this could represent mere noise (we acknowledge a more nuanced Saudi balance than our rough characterization captures … and uncertainty on refining runs), this potential increase could add texture to the OPEC+ dialogue and official pronouncements,” they continued.
In the report, the strategists noted that, “at core”, they anticipate Saudi Arabia “exercising a pragmatic oil policy, with a bias towards a tighter market, but not at all costs”.
“In our base case, we have assumed a gradual (and partial) easing of Saudi cuts across Q3 into a tight summer crude balance, before a Q4 pause, and an eventual reversal to nine million barrels per day in March 2025,” they added.
“While this is surely an overly precise path for Saudi supply, we attempt to capture a measure of ‘pragmatism’ in this expectation. Nevertheless, an alternative view that, in the short-run, KSA will do whatever is required to support price cannot be dismissed,” they continued.
In a previous oil and gas report sent to Rigzone on May 14, Macquarie strategists said they maintained the view that the Brent price will remain rangebound between $80 - $90 through the second quarter of this year.
“After 2Q, we expect oil will become bearish as a result of NOPEC supply growth, decreasing OPEC+ space capacity, and softer than anticipated demand due to persistent inflation,” they added in that report.
“However, we recognize that rising runs will tighten crude balances through August before large petroleum surpluses become apparent,” they said.
In a research note sent to Rigzone early Monday, J.P. Morgan analysts highlighted that, at $84 per barrel, Brent is trading below their “model-derived fair value of $88 in May, reflecting doubts about the health of the oil market as OPEC+ prepares to meet”.
“We ultimately expect OPEC’s oil ministers to agree on June 1 to roll over all production reductions until the end of the year … In the event of an announcement of a surprise cut, we would not make any material changes to our outlook unless Saudi and Russia are part of it,” they added.
“Looking beyond OPEC’s June meeting, we expect overall market fundamentals to improve and see a similar price action as observed last summer, with Brent oil moving $10 higher from current levels by September,” they continued.
The analysts warned in the research note that there are “catches”, however, “especially in 2024”.
“If prices move too high, they risk damaging demand. Given the U.S. dollar strength and high borrowing costs, oil prices substantially above $90 can cause severe disruptions in the global oil demand - as was the case in March-June 2022 and in September-October 2023 - in turn resulting in lower prices,” they said.
“High price might also encourage non-OPEC+ producers, especially in the U.S., to pump more oil. As a result, OPEC producers will continue to lose market share,” they added.
In a separate report sent to Rigzone earlier in May, analysts at Standard Chartered Bank said their balances indicate that OPEC has scope to increase output by over one million barrel per day in Q3 without increasing inventories.
In another report sent to Rigzone this month, Bjarne Schieldrop, the Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), said SEB’s view is that the group will adjust production as needed to gain the oil price it wants, “which typically is $85 per barrel or higher”.
To contact the author, email andreas.exarheas@rigzone.com
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