Oil Price Forecast: OIL/USD Stabilises Around $75 As OPEC+ Extend Cuts (2024)

OPEC+ members met over the weekend. Group-wide cuts and some voluntary cuts were extended to the end of 2025 to support oil prices.

However, additional voluntary cuts will be phased out from this September. With UAE allowed to produce 300,000 bpd extra from next year, there could potentially be 2.5M bpd additional suppkly in 2025.

Weekend news was not market sensitive and the remarkable rally into the US close on Friday looks set to continue on Monday. This saw the S&P500 rally nearly 1% in just 30 minutes on no catalyst at all., Goldman Sachs explained it like this: “SHARP reversal into the close with SPX bouncing 165bps off the lows, thanks to month-end dynamics at play and Asset Mgrs using the last 30 minutes as a liquidity grab to load up on tech.”

The FTSE and DAX are both higher by around 1% ahead of the European open. Currencies, meanwhile, are unmoved and did not partake in the volatile moves on Friday. Oil is slightly lower by –0.3% and is stuck near the May lows after the OPEC+ meeting at the weekend went mostly as expected.

OPEC+ Extend Cuts

OPEC+ met over the weekend and the 12-member cartel would have been fully aware that failure to extend cuts could have sent oil spiralling downwards after an already troubling two months which has seen the price of WTI Crude fall from an April high of $86.97/bbl to currently trade at $74.5/bbl. The extensions to voluntary cuts were therefore no surprise and had little effect on oil prices at Monday’s open.

There are a number of different cuts in place, some group-wide and some voluntary. The group-wide cuts currently take around two million barrels per day (bpd) off the market to shore up prices and these were extended from the end of 2024 to the end of 2025.

On top of these there are also several additional voluntary cuts. Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman all agreed to extend cuts amounting to 1.66bpd into the end of 2025. However, the additional voluntary cuts due to expire in June 2024 were only extended to September 2024 when they will be slowly phased out. These amount to 2.2bpd so there will be more supply to hit the market later this year.

On top of the phasing out of cuts, OPEC+ also agreed to allow the United Arab Emirates to increase its production target by 300,000 bpd for next year. This is another boost to supply which may depress prices from the end of 2024 into 2025.

“In theory, the unwinding of additional voluntary supply cuts and an increase in the UAE production target means that from October 2024 through until the end of 2025, OPEC+ is planning to bring 2.5m b/d of supply back onto the market,” note ING.

This is “in theory” as the cartel may make further adjustments as and when needed to support prices. If oil was to trade into the 60s and 50s, it is unlikely the cuts will be implemented, or at least, other ways will be found to constrain supply.

OPEC+ talked about the challenging environment which has pressured prices lower in recent months. A cooling in the US economy is one concern and the delay to rate cuts is another. A “higher for longer” rate environment slows growth and dampens demand. The International Energy Agency has lowered its estimates for demand in 2024, although OPEC+ have stuck to its existing forecasts. It is likely the market will be in slight deficit over the remainder of 2024, but as supply comes back throughout 2025 it could flip into surplus, and this is likely to weigh on oil prices going forward.

WTI currently trades at $76.5/bbl and is some way above the December 2023 low of $67.98/bbl. It looks like oil should trade a range above this important low but below the $86.97 2024 high. A stable range near $80/bbl is probably OPEC+’s aim.

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