OPEC+ on Sunday announced that it will limit combined oil production to 40.463 million barrels per day in 2024, with voluntary cuts announced by some of the members that were set to expire by 2023 extended to 2024.
Saudi Arabia said it would implement an additional 1 million barrel per day cut for a month starting this July and left open the possibility of extending it.
Bullish For Oil Prices: OPEC+'s agreement and Saudi Arabia's announcement are bullish for oil prices, said KeyBanc Capital Markets analyst Tim Rezvan. It takes barrels off the market and reinforces OPEC's intent to support an $80/barrel floor for Brent crude, he said.
Delving deeper into Sunday's announcement, the analyst said the news confirms that OPEC+ does not see a tight market or robust demand growth. The oil cartel is expecting a challenged market amid recession concerns and has acted accordingly, he said.
"There is a complacent and misguided bullishness being touted by prognosticators about a 2H23 super-spike in oil prices, based on low U.S. production growth and increasing China demand," Rezvan said.
The analyst said he sees the production cut as a validation of weaker market conditions and not a precursor to a super-spike. He expects the OPEC+ action to likely return Brent crude to the $75-$85 barrel per range.
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SPR Replenishment Unlikely: The OPEC+ decision reinforces the view that the Biden administration may not replenish the Strategic Petroleum Reserve any time soon, Rezvan said. He noted that SPR sales have continued in 2023, totaling 19.7 million barrels.
"We don’t see the political will to refill the SPR now, especially with the administration stating its interest in making repurchases around $70/b," the analyst said.
While production may decline by 1 million barrels per day, medium-term demand may also decline marginally, he added.
KeyBanc maintained its 2023 and 2024 price targets of $77.50 and $77 a barrel, respectively, for WTI crude oil in 2023 and 2024.
The United States Oil Fund, LP USO ended Friday’s session up 2.56% at $54.16, according to Benzinga Pro data
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