17.06.2024 Issuer Call Redemption Notice

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Violeta Todorova

Date

Crude Prices Retreat Ahead of OPEC+ Meeting

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  • Oil trades in a narrow range as market is balanced
  • OPEC+ meeting is crucial for the outlook of oil

Introduction

Volatility in the global petroleum markets have slowed down after massive disruptions caused by the coronavirus pandemic, Russia’s invasion of Ukraine, and the sanctions imposed in response by the United States and its allies.

Production and consumption are now growing at similar rates; inventories are near normal levels, and prices are close to average after adjusting for inflation. Crude prices have stabilised and have been trading in a wide range over the past seven months. Despite OPEC+ output cuts, an increase in crude production from the U.S. and other non-OPEC+ members, has sufficed to meet global oil demand.

OPEC+ Influence on Global Oil Production

The upcoming online meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, scheduled for June 2, 2024, holds significant implications for the global oil market.

OPEC+ crude oil output is roughly 40% of the global oil production and member countries hold around 80% of the global proven oil reserves. Given the block’s huge market share, the oil market outlook depends on OPEC+ production policy to a large degree. The meeting is highly anticipated and will be closely monitored as it has a huge significance for the oil market.

Anticipated Discussions at the Meeting

The main discussion among OPEC+ producers will be around their production policy and whether to extend the current voluntary output cuts of 2.2 million barrels per day (bpd) into the second half of the year or not.

The major concerns for OPEC+ are demand uncertainties, geo-political risk and potential supply disruptions, oversupply from non-OPEC+ producers, and assigning production quotas for OPEC+ member countries.

Impact of OPEC+ Decisions on Oil Prices

The OPEC+ output decision will be very important for the oil market outlook. Saudi Arabia – one of OPEC+ main producers has clearly shown it is committed to support crude prices. Additionally, several OPEC+ countries signalled that an extension of the cuts is likely, and we see a high probability the cartel will decide the current output cuts to remain in place for the rest of 2024.

The global crude demand for 2024 is expected to increase in the second half of the year. If OPEC+ extends the current output cuts until the rest of the year, this could tip the oil market into deficit, which in turn could push oil prices higher.

A graph of a stock market

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Source: TradingView

Crude Oil Prices Outlook

Supply and demand are the two major factors determining crude prices. Despite the high interest rates, which generally lead to a softer oil demand, we are seeing signs of a strong fuel demand at the beginning of the U.S. summer driving season alongside an increased demand for domestic and international flights.

Demand from China – the world’s biggest crude consumer is boosting its semiconductor industry, building expectations that oil demand will pick up. Also, expectation that the U.S. Federal Reserve will start cutting interest rates towards the end of the year in addition to a declining U.S. dollar are both likely to support oil prices.

An escalation of the conflict in the Middle East is a key risk to supply, together with a stricter enforcement of U.S. sanctions against Iranian oil output, are significant factors that could tighten the market and push crude prices higher.

Overall, in the short-term our view on oil is bullish given expectations of extension of the voluntary output cuts from OPEC+, signs of pickup in demand, expectations monetary policy will start easing by year end and a declining U.S. dollar. We see a very good probability the price of WTI oil will subsequently break resistance of $80.60 which should trigger an increase to $83.00 – $84.00. Over the medium to long term, our view is cautiously optimistic, and a further rise to $91.00 in the second half of the year appears possible.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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