OPEC+ Meeting Results Appear Supportive
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 recently, analysts at Standard Chartered noted that, in terms of supply and demand projections, the results of the OPEC+ meeting appear supportive “whether we use our balances or those of the main international and national agencies”.
“Those forecasts that previously showed builds in Q1-2024 no longer do so,” the analysts stated in the report.
“However, the market response to the meeting has been highly negative … In our view, with the OPEC+ meeting over the oil market simply reverted to an almost exclusive focus on a pessimistic economic outlook, with a particular emphasis on expectations of a U.S. recession,” they added.
The analysts noted in the report that their supply and demand model now shows a global inventory draw of 0.5 million barrels per day in the first quarter of next year, “even when making no allowances in the balances for the changes announced by Russia”.
“The usual seasonal pattern is an inventory build in Q1 given that demand tends to reach a seasonal low in January … Our forecast draw of 0.5 million barrels per day in Q1-2024 contrasts with the 1.5 million barrel per day build recorded in Q1-2023,” they added.
“We expect an inventory build of 1.37 million barrels per day in January followed by draws of 1.28 million barrels per day in February and 1.54 million barrels per day in March,” they continued.
The analysts stated in the report that media coverage has attempted to justify the sharp price fall in terms of the result of the OPEC+ meeting but added that they find those explanations unconvincing.
“One of the most common explanations offered is that traders heavily discounted the extra cuts because they were voluntary. However, every cut that OPEC or OPEC+ has ever made has been voluntary in the sense that each country cut is a sovereign decision,” the analysts said in the report.
“This implies that the complaint that the cuts were voluntary must really be a complaint that there was not an OPEC+ wide cut in targets,” they added.
“After the last OPEC+ wide cut in targets was agreed, the media, traders and analysts argued that the cuts were not fully credible because some countries did not have the capacity to reach their current targets and so would not be cutting their actual level of output,” they analysts continued.
“A more focused cut by those countries both willing and able to cut has now been labelled as not being credible because countries unable to cut have not been included. This is not a logical complaint in our view, and we think the 1.7 million barrels per day of crude oil output cuts promised for Q1-2024 will likely be fully delivered,” they went on to state.
Other explanations of the price fall included the suggestion that the results of the meeting were too confusing for traders to understand, the analysts said in the report.
“We think this is also an untenable view; e.g., we think OPEC+ meeting results appear extremely straightforward compared with processing the written and oral output of an average central bank meeting,” they added.
In the report, the Standard Chartered analysts noted that, with few longs remaining in the market following recent price reversals, “we would not expect traders to show much commitment to new long positions until the effects of both the continuing and the new OPEC+ cuts are clear in the data”.
“This is a market that has reverted to ‘show-me’ mode, i.e. the cuts will support prices but the upside may prove challenging while recessionary fears dominate,” they said.
The analysts stated in the report that oil demand remains extremely robust but added that “demand pessimism remains a powerful force in the oil market, despite an extended run of positive demand shocks”.
The Standard Chartered analysts also highlighted in the report that the post-OPEC+ price falls took February Brent “well below the $81.15 per barrel forecast for 4 December settlement made by SCORPIO, our machine-learning model”.
“SCORPIO predicts a settlement of $79.81 per barrel on 11 December, i.e., a week on week increase of $1.78 per barrel, with the main positive factor an overextension of speculative short positions,” they added.
Standard Chartered’s report shows that the company expects the ICE Brent price to average $92 per barrel in the first quarter of 2024, $94 per barrel in the second quarter, $98 per barrel in the third quarter, $96 per barrel in the fourth quarter, and $98 per barrel overall in 2024.
In a separate report sent to Rigzone following the latest OPEC+ meeting, analysts at BMI, a Fitch Solutions company, said “the oil markets have reacted poorly to the new production curbs announced on November 30 by OPEC+”.
“A failure to reach consensus on new production quotas for 2024, poor communication in the wake of the meeting, and concerns over compliance with the deal in Q1 have all weighed heavily to the downside,” the analysts added.
“We hold to our current forecast for Brent to average $85 per barrel in 2024, while noting meaningful risk to the downside,” they went on to state.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas