February 23, 2024

In an oil market update sent to Rigzone late Thursday, Rystad Energy Senior Vice President Jorge Leon described the outcome of the latest OPEC+ ministerial meeting as “a bittersweet victory for Saudi Arabia”.

“The Kingdom won the backing of some OPEC+ members to contribute to output cuts into next year, but others remain opposed or on the fence and are not included in this fresh round of reductions,” Leon said in the update.

“The inability to secure a group-wide decision on production cuts does not bode well for the group’s unity and cohesion and limits the group’s ability to balance the market,” he added.

“Oil prices immediately sunk after the announcement, reversing gains from earlier in the day, suggesting the market was disappointed by the outcome,” he continued.

In the update, Leon outlined that this was down to two reasons.

“Firstly, the cuts are short-term, for now, and only valid for the first quarter of 2024,” Leon said.

“Second, and most importantly, the group failed to agree to a strategy unanimously and had to rely on voluntary unilateral cuts instead,” he added.

Leon highlighted that the meeting was initially scheduled for November 26 and pointed out that “disagreements over output quotas for African countries forced the group to delay the meeting by four days”.

“With these renewed cuts, our updated liquids balance for the first half of 2024 shows a market deficit of around 400,000 barrels per day,” Leon said in the update.

“As a result, we expect prices to hover between $80 and $85 per barrel in the coming months,” he added.

Most Salient Item

In a separate report sent to Rigzone late Thursday, Macquarie strategists said, “while a number of headlines continue to trickle in surrounding today’s OPEC+ meeting, we believe the most salient item may be the continuation of Saudi Arabia’s one million barrel per day voluntary cuts through Q1 2024”.

“As we had previously noted, we believed a continuation of these cuts into Q2/Q3 might be required for the meeting to be viewed bullishly,” the strategists added.

“From that perspective, the meeting could be seen as falling short. Also, notably, the wording of the relevant release by the Saudi Press Agency indicates an intention to return these volumes to the market gradually thereafter, contingent upon market conditions,” they continued, noting that “this language was also echoed in an OPEC release discussing additional voluntary cuts”.

In the report, the strategists said the official OPEC communique was “short on details but noted: one) The inclusion of Brazil in OPEC+ from January 2024; two) 2024 baselines of 1.110 million barrels per day for Angola, 0.277 million barrels per day for Congo, and 1.500 million barrels per day for Nigeria; three) The next ministerial meeting is set for June 1, 2024”.

“With respect to Brazil, we expect its inclusion in OPEC+ to have little fundamental impact. Given ongoing investment and planned production growth, we would be surprised to see Brazil supply meaningfully constrained by OPEC+ inclusion,” they added.

“Likewise, while Angola is openly protesting the above baseline, we do not find the dispute particularly meaningful for oil market fundamentals,” they continued.

Q1 Surplus

The Macquarie strategists noted in the report that they had been anticipating a very large Q1 2024 surplus, “assuming a Saudi taper through the quarter”.

“On its own, holding Saudi production flat at ~nine million barrels per day through March would reduce the Q1 surplus to a still large ~1.2 million barrels per day,” they said.

“Although the additional voluntary cuts detailed above could further trim this surplus, given recent production history, these may be discounted to varying degrees,” they added.

“All told, today’s announcement should blunt an otherwise very bearish fundamental picture in Q1 2024, but we believe this had already been discounted by the market to some extent,” they continued.

The strategists also stated in the report that they hesitate to speculate too broadly about the inner workings of the group.

“On its face, this meeting would appear to represent some potential progress around more equitable burden-sharing between KSA and OPEC+ partners,” they said.

“That said, we still see an underlying tension between restrictive OPEC/Saudi oil policy, ongoing capacity expansions among core OPEC producers (namely, Saudi Arabia, and UAE), and responsive non-OPEC supply,” they added.

“In any event, Saudi Arabia/OPEC + settling on a meeting outcome that apparently did not exceed market expectations and support price could be viewed as a minor tactical shift,” the strategists went on to state.

OPEC Releases

Three releases were published on OPEC’s website on November 30, with the first focusing on OPEC’s participation at COP28.

The second focused on the 36th OPEC and non-OPEC ministerial meeting and stated that the gathering “reaffirmed the continued commitment of the participating countries in the declaration of cooperation to ensure a stable and balanced oil market”.

It also noted that the meeting “reaffirmed the framework of the declaration of cooperation, signed on 10 December 2016 and further endorsed in subsequent meetings including the 35th OPEC and Non-OPEC Ministerial Meeting on 4 June 2023; as well as the charter of cooperation, signed on 2 July 2019”.

The third release focused on OPEC+ countries announcing additional voluntary cuts.

“The OPEC Secretariat noted the announcement of several OPEC+ countries of additional voluntary cuts to the total of 2.2 million barrels per day, aimed at supporting the stability and balance of oil markets,” that release stated.

“These voluntary cuts are calculated from the 2024 required production level as per the 35th OPEC Ministerial Meeting held on June 4, 2023, and are in addition to the voluntary cuts previously announced in April 2023 and later extended until the end of 2024,” it added.

“These additional voluntary cuts are announced by the following OPEC+ countries : Saudi Arabia (one million barrels per day); Iraq (223,000 barrels per day); United Arab Emirates (163,000 barrels per day); Kuwait (135,000 barrels per day); Kazakhstan (82,000 barrels per day); Algeria (51,000 barrels per day); and Oman (42,000 barrels per day) starting 1st of January until the end of March 2024,” it continued.

“The above will be in addition to the announced voluntary cut by the Russian Federation of 500,000 barrels per day for the same period (starting 1st of January until the end of March 2024), which will be made from the average export levels of the months of May and June of 2023, and will consist of 300,000 barrels a day of crude oil and 200,000 barrels per day of refined products,” it went on to state.

To contact the author, email andreas.exarheas@rigzone.com

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