In a significant rebound, oil prices have surged this week, marking their best performance since early April.
According to Patricio Valdivieso, Vice President & Global Lead of Crude Trading Analysis at Rystad Energy, Brent crude futures have recovered after nearing a low of US$82.0 per barrel.
The market’s recovery is tempered by ongoing concerns about weak oil demand and mixed economic data from China, contributing to persistent volatility.
Valdivieso emphasised that while the market focus remains heavily on demand-side fundamentals, Rystad Energy’s latest market update also highlights critical insights from the supply side.
This perspective is informed by recent guidance from OPEC+ and the OPEC monthly report, shedding light on future oil production dynamics.
The latest OPEC+ guidance, maintaining a 2.25 million barrels per day (bpd) demand growth outlook, signals stagnation in oil supply growth for 2024 and potential production declines in 2025.
Despite market uncertainties, Valdivieso asserts it is challenging to maintain a fully bearish stance given the anticipated deceleration in global oil supply growth.
On June 2, OPEC+ announced an extension of its voluntary production cuts until the end of the third quarter of this year, with a gradual unwinding planned from October 2024 through September 2025.
This decision aligns closely with Rystad Energy’s earlier predictions, further confirming the likelihood of sustained supply constraints.
Rystad Energy estimates a drastic reduction in expected oil supply growth for 2024, from nearly 900,000 bpd to approximately 80,000 bpd.
This revision is attributed to the extended and gradual unwinding of production cuts, marking 2024 as potentially the first year since 2020 with no growth in oil supply.
OPEC+ production with quotas is projected to decline by approximately 830,000 bpd for 2024, with total yearly production estimated at around 37.2 million bpd, a significant drop from pre-announcement levels of 38 million bpd.
In contrast, non-OPEC+ supply remains robust, particularly from US shale, Canadian oil sands, Brazil’s pre-salt, and Guyana’s offshore fields.
However, several countries, including Russia, Iraq, Saudi Arabia, and Kuwait, face substantial market share risks due to the prolonged voluntary cuts.
Saudi Arabia alone is withholding an additional 256,000 bpd in 2024, while Russia and Iraq are set to reduce their output by 176,000 bpd and 127,000 bpd, respectively.
Despite the bearish sentiment triggered by the latest OPEC+ announcement, Valdivieso notes that the group’s commitment to production cuts underscores a cautious approach amidst uncertain demand prospects.
This strategy reflects an awareness of potential demand risks in the latter half of 2024 and into 2025, indicating a careful balancing act between market stability and revenue generation.
As global oil supply growth faces significant challenges, the market’s initial negative reaction to the OPEC+ guidance may be tempered by the broader implications of sustained production constraints.
