A Morningstar energy and utilities strategist says OPEC is operating from a position of weakness, in an oversupplied market
- pointing to near-term oil price weakness
- oil prices are more likely to hit S70 a barrel (WTI) and perhaps below S65 by the end of 2024
- OPEC has three separate cuts in progress at the moment, totaling 5.86 million barrels per day.
- The key phrase in the announcement, in our view, was that the monthly increases from the reversal of the 2.2 million barrels per day cut can be "paused or reversed subject to market conditions." In other words, we could expect the 2.2 million barrels per day reversal to be placed on hold, if the market remains oversupplied. The extensions look particularly weak when OPEC is assuming about 2.25 million barrels per day of oil demand growth in 2024, while the International Energy Agency is less than half of that at 1.06 million barrels per day. Further, the International Energy Agency and US Energy Information Administration have been cutting demand growth forecasts for 2024, while OPEC's forecast has been unchanged since the start of 2024. In other words, OPEC's own demand forecast looks potentially stale, and even if OPEC believes it remains accurate, it has now been undercut by the extensions of reduction cuts.
From a note on Tuesday. I'm a little late to this.
Oil price update:
