Oil rebounds on expectations OPEC will further cut output
Oil rebounded strongly in New York, after having plunged the previous session, on rising expectations that OPEC and its allies are poised to extend output cuts, and potentially deepen them.
In a note, JPMorgan strategists Christyan Malek, Otar Dgebuadze and Marko Kolanovic said their base case scenario for the November 26 OPEC meeting is that existing cuts should be extended.
“However, we don’t rule out a scenario of deepening the cuts by up to a million barrels to preemptively clear potential demand weakness in the first half of next year associated with a worse than expected developed markets-led recession.”
OPEC is poised to emerge as, according to JPMorgan, as the ‘Last Man Standing’ to meet future demand growth, well beyond 2030. AP
The JPMorgan strategists also said: “Moreover, speculative-led selling remains a key theme driving the volatility” and “it is likely that demand destruction in developed markets is in the back of many investors’ minds”.
A day earlier Goldman Sachs’ Daan Struyven said oil prices were slightly lower this year despite demand “exceeding our optimistic expectations”.
Struyven also said: “We believe that OPEC will ensure Brent in a $US80-$US100 range by leveraging its pricing power, with a $US80 floor from the OPEC put, and a $US100 ceiling from spare capacity.
“While higher non-OPEC supply or lower GDP are downside risks to prices, we estimate that Brent would remain close to $US80 unless OPEC became less assertive.”
US oil, or West Texas Intermediate, rallied as much as 4 per cent to trade near $US76 a barrel on Friday, according to Bloomberg data. Global benchmark Brent advanced as much as 4.3 per cent to top $US80.
Goldman is forecasting that robust demand, slowing US supply growth, and lower OPEC supply for longer will result in a moderate daily deficit in 2024. “As a result, we expect that gentle inventory declines will raise timespreads and Brent to a peak of $US95 a barrel by August 2024, with the 2024 average at $US92 a barrel.”
JPMorgan also is bullish on the price outlook. “OPEC’s long-term pricing power remains strong. OPEC’s oil policy is stability, and it will continue to play the role of ‘Central Bank for Energy’ in ensuring the industry can invest in future projects to protect the global economy from tail risks of significantly higher oil and short-term spikes beyond 2025.
“We believe short-term market share sacrifices as a result of larger cuts do not impinge on its ability to ultimately regain share of future demand growth, as the long-term demand forecast remains robust.”
OPEC is poised to emerge, according to the JPMorgan strategists, as the ‘Last Man Standing’ to meet future demand growth, well beyond 2030.
JPMorgan also said OPEC actions are “typically forward-looking and have proved successful in managing volatility to the downside in the past.
“We think Saudi Arabia does have meaningful flexibility to cut further, if needed. We may see, in addition, Saudi seek to “share the load” of any potential further cuts among OPEC+ peers - a collective effort, rather than unilateral. We believe this is possible assuming relationships continue to remain strong within the Group and our view remains unchanged.”
In a strategy note, ANZ Research said while it expects crude oil prices to remain volatile, the presence of heightened supply risk amid further drawdowns in inventories will still see prices above $US90 a barrel by the end of the year, potentially to a $US100 a barrel.
“We continue to see some upside risks to this scenario should geopolitical tensions rise, or the demand backdrop improves.”
ANZ said it expects both Saudi Arabia and Russia to extend their current voluntary output cuts through 2024.
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Commodities
Fetching latest articles