While the meeting outcome reiterates OPEC+’s commitment to support and provide stability towards the oil market, RHB Research (RHB) is relatively neutral given the minimal impact to the oil market. Overweight call is maintained. Opec+ is a group of 23 oil-exporting countries which meets regularly to decide how much crude oil to sell on the world market.
“We believe the additional voluntary cut of 1 million barrels per day (mbpd) by Saudi Arabia would provide more price support if it is extended to the end of this year,” said RHB in the recent Regional Sector Update Report.
OPEC+ has decided to keep the current production cut scheme till the end of this year and further extend the deal till end-2024 with slight adjustments.
This would bring OPEC 10 and non OPEC production to 25mbpd and 15.5mbpd in 2024. Amongst the OPEC cartel, Nigeria will take the largest cut with a quota of 362kbpd as compared to the voluntary required production level in 2023.
This is followed by Angola (175kbpd), Equatorial Guinea (51kbpd), and Congo (51kbpd) while the UAE’s required production level is lifted by 200kbpd. On the other hand, Saudi Arabia also announced another voluntary cut of 1mbpd in July.
“While the meeting outcome reiterates OPEC+’s commitment to support and provide stability towards the oil market, we are relatively neutral on this event. According to OPEC, OPEC 10’s production is at 24.1mbpd, already below the required production of 25mbpd,” said RHB.
Furthermore, the additional quote committed in April does not seem to continue in 2024 but has been instead replaced by the adjustments mentioned earlier.
Therefore, the net production cut impact year-on-year by OPEC in 2024 is not significant, and RHB believes the market may not be overly excited over this.
That said, there is no mention of whether Saudi Arabia’s voluntary cut of 1mbpd in July will be maintained till the end of this year since the formally announced production level in 2024 has not factored in such a cut.
Oil prices have been fairly weak due to an uncertain economic outlook including weak China data and US debt ceiling concerns as well as the strengthening of the USD.
“While Brent prices have been averaging below our projected USD85 per barrel in quarter two 2023, which could provide some downside risk to our full year projection, we are still expecting the oil market to improve in the second half 2023,” said RHB.
In OPEC’s May monthly report, oil demand is still projected to improve by 2.3mbpd to 101.9mbpd in 2023. While there is still risk for such numbers to be trimmed, RHB is of the view that OPEC+’s influence remains strong and its strategy to protect the oil market, via production cuts, is still intact. Downside risks identified by RHB are weakening oil prices and demand, and a decrease in spending by clients.
