The latest OPEC+ outcome “supports near-term balance” but “appears problematic for 2025”, Macquarie strategists, including global energy strategists Walt Chancellor and Vikas Dwivedi, outlined in a note sent to Rigzone by the Macquarie team.
“We think this weekend’s OPEC+ meeting boils down to two key items – one, an extension of 2.2 million barrels per day of voluntary cuts through Q3 2024; two, a visible roadmap for returning said cuts to the market from October 2024 - Sep. 2025, subject to market conditions,” the strategists said in the note.
“The former stands to amplify summertime tightness in crude; the latter represents a stronger indication that extreme levels of market support by OPEC+ (principally Saudi Arabia) may not last forever,” they warned.
In the note, the strategists said they expect the 2.2 million barrel per day cuts to “amplify a potentially very tight summer crude balance” but added that, “absent improved compliance”, they don’t anticipate “a total petroleum balance in a large deficit over this period”.
“Under full conformity, the voluntary cuts would place production from OPEC participants Saudi Arabia, Kuwait, UAE, Iraq, and Algeria at ~19.2 million barrels per day through Q3 2024,” the strategists highlighted in the note.
“This compares to IEA’s estimated April production of ~19.8 million barrels per day and our prior base case which (subsequent to a gradual easing of cuts) assumed ~20.8 million barrels per day in Q3 from this group,” they added.
“While nominally this might appear like a very large difference, we think it’s possible May supply from these five producers exceeded 20 million barrels per day, for perspective,” they continued.
The analysts went on to state in the note that, in any event, they believe a meaningful gap between apparent OPEC+ supply to market and official estimates of production has persisted in 2024, “weighing on fundamentals”.
Returning Barrels
The Macquarie strategists said in the note that, alongside the Q3 rollover, a detailed plan to return these barrels from October 2024 to September 2025 was presented, subject to market conditions.
“All told, we believe this will prove challenging given ongoing non-OPEC supply growth, as we anticipate a solid close to 2024 for the U.S. and see a robust pipeline of long lead time supply in 2025,” the strategists warned.
“For perspective, our 2025 balances have previously contemplated FY 2025 Saudi supply of ~9 million barrels per day and lower prices moderating U.S. growth while still arriving at a surplus,” they added.
“In total, perhaps it is best to take OPEC+/Saudi Arabia seriously but not literally, with respect to the timing and implementation of this return of supply. Amidst this signaling, and recent strength in OPEC supply to market, we see an intention to not perpetually sacrifice volumes to support the oil market,” the strategists went on to state.
In a report sent to Rigzone this week by J.P. Morgan’s Commodities Research team, J.P. Morgan analysts highlighted that they have been arguing that OPEC+ should unwind some of the voluntary reductions in 2024 “at a time when demand allows for it, at the expense of slightly lower prices”.
“Otherwise, and similarly to the Fed’s ‘zero lower bound’ constraint, OPEC’s massive effective spare capacity - a historic 4.1 million barrel per day high at a time of record demand - will make it increasingly difficult to accommodate further large-scale supply reductions when they will be likely needed in 2H25,” they added.
“We have also argued that a case could be made for choosing higher volumes in order to achieve better optionality in the future. This time might come later next year,” they went on to state.
OPEC+ Meeting
A statement posted on OPEC’s website on June 2 noted that OPEC+ countries which announced additional voluntary cuts in April and November 2023 held a meeting in person in Riyadh on the sideline of the 37th OPEC and non-OPEC ministerial meeting.
These countries included Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, the statement highlighted.
“The meeting was conducted to reinforce the precautionary efforts of OPEC+ countries, aiming to support the stability and balance of oil markets,” the statement said.
A separate statement posted on OPEC’s site on the same day outlined that, at the latest OPEC+ meeting, OPEC and non-OPEC Participating Countries in the Declaration of Cooperation (DoC) decided to “reaffirm the mandate of the Joint Ministerial Monitoring Committee to closely review global oil market conditions, oil production levels, and the level of conformity with the DoC, assisted by the Joint Technical Committee (JTC) and the OPEC Secretariat”.
The JMMC meeting is to be held every two months, the statement announced. The participating countries decided to hold the 38th OPEC and non-OPEC Ministerial Meeting on December 1, the statement revealed.
To contact the author, email andreas.exarheas@rigzone.com
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