The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, are known collectively as OPEC+ and will meet on Sunday, June 2, to discuss their joint oil production policy. However, analysts are not particularly bullish on the crude oil prices this year as many believe markets to be oversupplied with OPEC decisions hardly making a difference towards ‘price stability’.
OPEC+ has made a series of cuts since late 2022 amid rising output from the United States and other non-members, and worries over the demand outlook as major economies grapple with high interest rates to tame inflation. The oil-producing group is working on a complex deal to be agreed on Sunday that will allow the group to extend some of its deep oil production cuts into 2025.
The group is currently cutting output by a total of 5.86 million barrels per day, equal to about 5.7 per cent of global demand. The cuts include 3.66 million bpd by OPEC+ members valid through to the end of 2024, and 2.2 million bpd of voluntary cuts by some members which expire at the end of June.
Several brokerages are predicting that crude oil is likely to remain in the range of $79-$85 till the second quarter of 2024, with JPMorgan forecasting an average of $83 per barrel this year. Kaynat Chainwala, AVP-Commodity Research of Kotak Securitie in an interview to Mint’s Nikita Prasad, said that crude oil prices are weaker because of the current oil market condition. Imran added that OPEC is ‘artificially’ curtailing oil production and losing its market share to maintain Brent above $80 per barrel.
Edited excerpts from the interview:
1. The upcoming OPEC and non-OPEC ministerial meeting will be held on June 2, 2024. According to you, what will OPEC+ decide in terms of the global oil output? After the policy decision, what kind of immediate impact do you see on crude oil prices?
OPEC is expected to extend the output cuts into 2H 2024 in an effort to stave off a surplus and support crude prices already contending with fragile Chinese economic outlook and rising non-OPEC supplies. The shift to a virtual meeting indicated that there might be no major policy changes. Markets have already discounted such an outcome and thus don’t see any major impact on prices post the policy.
2. OPEC cartel last extended the voluntary oil output cuts of 2.2 million barrels per day into the second quarter or mid-2024 to support ‘market stability’. However, oil prices have remained in a consolidation range, with $91/barrel being the highest achieved mark since then. Do you see crude oil prices on an up move in the near term through the Middle East geopolitical risk premium?
Oil prices have given up most of the middle east geo-political risk premium seen in April amid lack of supply disruptions, other than isolated events at the Red sea. Without the disruption of actual barrels of oil, any gains might be capped. The odds of a direct conflict between Iran and Israel or US is also very minimal ahead of the US presidential election in November.
3. Coming to policy changes, high interest rates by central banks have typically weakened oil demand. However, the recent hawkish remarks by the US Federal Reserve policymakers have diminished hopes of a June rate cut. With the ongoing geopolitical conflicts, do you think the global supply will be enough for markets if global demand shoots up in late 2024?
Elevated inflation in US and resilience in the economy have prompted Fed officials to be more hawkish this quarter and swaps are now expecting only a single quarter point rate cut this year, during Q4. EIA expects global oil demand to slightly outpace supply this year, leading to a small deficit of around 100 kbpd. Q4 is generally a period of lower demand. Chinese economic recovery will be crucial for oil demand.
4. Finally, what is your 2024 outlook for crude oil prices and how many times will OPEC likely extend the supply curbs this year? When do you see Brent touching $100 per barrel and what key advice do you have for investors who are betting on MCX crude futures?
OPEC is likely to extend the curbs through the second half of this year and might start unwinding from early 2025. Crude is expected to trade in a range of $70 – $90 per bbl this year, with OPEC keeping a floor under prices. Even though oil demand is expected to see an uptick from June amid the onset of summer driving season in northern hemisphere, we are not expecting any sustained increase in prices above $100 per bbl, amid higher interest rates, Chinese economic uncertainty and US elections.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 01 Jun 2024, 05:18 PM IST
