JP Morgan, S&P Global, Rystad Look at Latest OPEC+ Move
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas
In a report sent to Rigzone on Monday by the J.P. Morgan Commodities Research team, analysts at J.P. Morgan outlined that they view OPEC+’s latest move as “market neutral for global crude oil balances and prices in 2024”.
The analysts highlighted in the report that the group extended 3.6 million barrels per day of existing cuts until the end of 2025, with a “major focus on undercompliance”, and prolonged an additional 2.2 million barrels per day of cuts until September 2024, “followed by tapered increases over 12 months”.
“We find current oil prices $8 too cheap and continue to make a bullish case for oil in 3Q24 largely based on our outlook for demand,” the analysts said in the report.
“Oil demand grew by only by 1.3 million barrels per day in the first quarter, underperforming our expectations by 0.6 million barrels per day almost entirely due to a warm winter,” they added.
“But demand is in the midst of a transition, moving from a period of seasonally low consumption in April and May and into a peak summer travel season,” they continued.
In the report, the J.P. Morgan analysts said the composition in demand growth will likely shift from liquids heavy petrochemicals to crude-rich products like gasoline and jet fuel.
“Consequently, we anticipate global oil demand to accelerate by 2.5 million barrels per day from the end of April through the end of August, in turn boosting global refinery runs by four million barrels per day over the same period,” they added in the report.
The J.P. Morgan analysts said in the report that the rollover of the full 5.8 million barrels per day of OPEC’s supply reductions until October 2024 should tighten balances, “resulting in a 1.1 million barrel per day inventory draw in the third quarter”.
“Importantly, we see similar inventory declines as observed last summer (two million barrel per day draw this August vs 2.4 million barrels per day in August 2023) and, accordingly, expect a similar price action, with Brent oil moving at least $10 higher from current levels by September,” they added.
The price in the $90s should keep pressure on the U.S. administration in the run-up to elections but also open the door for the alliance to bring a small proportion of its curbed production in October, the analysts noted in the report.
“Assuming good compliance with … [the] announced output levels and no changes to demand, our balance shows only a small 0.1 million barrel per day surplus in 4Q24,” the analysts highlighted.
They added, however, that “pressure on prices could build after that, as supply outside of OPEC rises and demand slows in 2025”.
“Our global liquids balance projects a shift from a small 0.2 million barrel per day deficit in 2024 to a much looser 2025,” they continued.
“Global oil demand growth will likely decelerate from 1.4 million barrels per day this year to one million barrels per day in 2025 as the last phase of the post-pandemic rebound dissipates and advancing energy efficiencies and an expanding electric vehicle fleet gain ground,” the analysts went on to state.
Non-OPEC+ supply is set to surge by 1.8 million barrels per day, underpinned by large-scale, price-inelastic offshore developments in Brazil, Guyana, Senegal, and Norway, the analysts said in the report.
“In total, eight floating production, storage, and offloading (FPSO) vessels with a combined capacity of 1.4 million barrels per day are committed for delivery in 2025. With demand gains set to slow, and non-OPEC supply surging, the market would likely shift into a large one million barrel per day surplus next year,” they added.
The analysts highlighted in the report that their Brent price projection sees the commodity averaging $83 per barrel this year and $75 per barrel in 2025, “with prices dipping below $70 by year-end 2025”.
In an analysis piece sent to Rigzone by S&P Global, Bhushan Bahree, Executive Director, S&P Global Commodity Insights, said, “OPEC+ member countries would like to start increasing oil production without negatively impacting prices” but added that “they cannot do that just yet”.
“The need for more OPEC+ oil on a durable basis in the near future is not immediately evident and the group’s ministers reflected that in their latest decisions on supply to markets,” Bahree added.
Bahree noted in the piece that, two years ago, at this time, OPEC+ output was 2.2 million barrels per day higher than it is now.
“Total non-OPEC+ crude oil output is 3.1 million higher now, with more than half that growth coming from the United States alone,” Bahree said.
“Put another way, OPEC+ has had to make room for the rising output of others or face downward pressure on prices,” Bahree added.
In the piece, Paul Tossetti, Executive Director, S&P Global Commodity Insights, said, “this time around, the timetable is a message to markets that these countries are willing to at least stay the course, even if disinclined to cut output further, to support prices by continuing to restrain their output for longer if necessary – at least for a time, anyway”.
Tossetti also noted in the statement that, “an increase in quota does not automatically translate into more supply”.
“The United Arab Emirates, for instance, is participating in additional voluntary cuts at this time. But the adjustment does change the share of the OPEC+ pie, giving the UAE a larger slice,” he added.
In a special market update shared with Rigzone ahead of Sunday’s OPEC+ meeting, Rystad Energy Senior Vice President & Head of Oil Trading/Downstream Analysis, Mukesh Sahdev, said, “market sentiment and news reporting signals that an extension to OPEC+ production cuts is imminent”.
“The U.S. Federal Reserve has expressed concern about risks to inflation, while a U.S. crude inventories draw was countered by stockpiles in U.S. gasoline inventories against expectations,” Sahdev added.
“Against this backdrop, speculation has increased of a potential OPEC+ production cut extension into next year,” Sahdev continued.
In the special market update, the Rystad representative noted that “the bottom-line signal is that OPEC+ is likely to stay in pre-emptive market management mode to keep contango away and prevent oil prices from spiraling to higher levels”.
“Our call for oil prices to hang in the range of $80 to $90 per barrel since last year has turned out to be in line with the fundamentals, while the risk premium has been oscillating,” Sahdev said.
“It is important to note that OPEC+ has both the ability and the will to execute a crafted strategy.
The group’s strength in the upstream sector is now complemented by a downstream complex refining growth of two million barrels per day over the last few years, while the Atlantic Basin has seen significant erosion,” Sahdev added.
The Rystad analyst warned in the update that geopolitics was the “wild card for any unwind surprise” at the meeting.
J.P. Morgan describes itself as a leading global financial services firm with assets of $2.6 trillion and operations worldwide. S&P Global Commodity Insights is one of a handful of “secondary sources” used by OPEC+, the company’s analysis piece highlights. Rystad describes itself as an independent research and energy intelligence company, “equipping clients with data, insights and education that power better decision-making”.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas