Crude Oil News Today: Steady to Lower as OPEC+ Fails to Amaze Traders with Cuts

By Street Asset On Jun 3, 2024 0 0

OPEC+ Output Cuts

OPEC+ is currently reducing production by 5.86 million barrels per day (bpd), approximately 5.7% of global demand. This includes 3.66 million bpd of cuts initially set to expire at the end of 2024, and voluntary reductions by eight members totaling 2.2 million bpd, which were to end in June 2024. The group has now extended the 3.66 million bpd cuts until the end of 2025 and prolonged the 2.2 million bpd cuts by three months, until the end of September 2024, with a phased rollback over the following year.

Market Reactions

Despite the extended cuts, analysts suggest the decision has a bearish undertone. The market was not expecting OPEC+ to start unwinding the cuts in the fourth quarter of 2024. Goldman Sachs analysts echoed this sentiment, noting that the detailed plan to phase out the voluntary cuts undermines efforts to maintain low production if market conditions soften.

Middle East Tensions

In the Middle East, ongoing conflict between Israel and Hamas adds uncertainty. Mediators, including the U.S., urge for a ceasefire, but Israel remains firm on not formally ending the war while Hamas is in power. This geopolitical tension influences market stability, but its impact on oil prices is currently secondary to OPEC+ decisions.

Demand Projections

OPEC+ is betting on a robust demand forecast, expecting global demand to grow by 2.25 million bpd, matching the current voluntary cuts. However, the risk remains that demand growth may falter due to tighter monetary policies, geopolitical conflicts, and uncertain economic signals from major consumers like China.

Asian Demand Concerns

Asia, the top oil-consuming region, shows weak demand growth. Data indicates that Asia’s crude imports for the first five months of 2024 were only marginally higher than the same period in 2023. This raises questions about OPEC’s optimistic demand forecast.

Market Forecast: Bearish Outlook

Given the detailed plan to unwind production cuts and concerns over demand growth, particularly from Asia, the short-term market outlook is bearish. Oil prices are likely to face downward pressure unless there is a significant and sustained increase in global demand, particularly from China and other major Asian economies. OPEC+ may need to adjust its strategy if demand does not meet expectations.