On June 2nd, OPEC+ decided to adopt a pensive position rather than a defensive or offensive one and it promptly sent the oil market into a tizz. Quite frankly, it needn't have. According to data aggregators, OPEC+ members are currently cutting production by 5.86 million barrels per day (bpd).
The figure includes 3.66 million bpd of group-wide cuts and "voluntary cuts" by eight members of 2.2 million bpd. They include Saudi Arabia, Russia and six others - Algeria, Iraq, Kazakhstan, Kuwait, Oman and the United Arab Emirates.
The latter cuts were due to expire at the end of June 2024 while the group-wide ones were due to end in December 2024. Following a part-online, part-physical meeting, OPEC+ extended the cuts of 3.66 million bpd until the end of 2025. But it only prolonged the cuts of 2.2 million bpd by three months until the end of September 2024. After which these voluntary cuts will be gradually phased out over the course of a year from October 2024 to September 2025.
As the markets opened for trading the following, a crude carnage ensued with Brent shattering its $80 per barrel floor and heading lower to $77. While the OPEC+ decision can be construed as bearish, it wasn't the only reason for the slide in prices. As this blogger told Reuters, a number of factors came into play and OPEC's mild surprise merely served as a catalyst. Economic uncertainties persist both in US and China - the world's two leading crude consumers. Neither country offered consistently positive data the month before.
Both the IEA and OPEC have now revised their demand growth forecasts lower, albeit to varying degrees. The IEA's (at 1.1 million bpd) is half of what OPEC now predicts (2.2 million bpd). Traders looked at all that and went net short for the week.
However, all things being equal, Brent under $80 did appear to be oversold, as yours truly wrote on
Forbes. That's why merely a calendar week later, prices are back above $80 and about right too. What OPEC did (or didn't) matters, but only to a point.
And now from oil to LNG, where yours truly has been doing a deep dive into the state of affairs and the general direction of the global market.
That's after the latest outages in Norway and Australia triggered yet another spike in prices. As the Oilholic said in a recent
CGTN interview, only high levels of storage in Europe have stopped prices from overshooting. It all bottles down to Asia (the world's largest LNG importing region) regularly competing with Europe (the second-largest) for cargoes. This year, Dutch TTF gas prices have risen by 40% over the past three months to trade at around $11 per million British thermal units (mmbtu) levels.
However, here's the Oilholic's latest market analysis via
Forbes on why a change may be on the horizon. Overall, future Asian demand, pace of the energy transition and new supply coming onstream (in the US and Qatar) will likely influence a calmer direction of near-term travel as the end of the current decade approaches. (Full report
here).
That's a wrap for now. More musings to follow soon. Keep reading, keep it here, keep it 'crude'!
© Gaurav Sharma 2024. Photo I: OPEC logo at its Secretariat in Vienna, Austria. © Gaurav Sharma 2018. Photo II: Gaurav Sharma on CGTN Europe for commentary on the natural gas market. © CGTN, June 2024.
