The oil agreement, without taking into account the voluntary reductions of a number of countries, was previously calculated until the end of 2024.
OPEC+ decided to extend the agreement on reducing oil production for the whole of 2025, reported organization in the communique based on the results of the meeting on June 2.
The total quota of countries for the next year has been increased. Thus, previously the permitted oil production level of all OPEC+ members was 39.425 million bars. per day (b/s). From January 2025, this quota will increase by 300 thousand b/d through the UAE and will amount to 39.725 million b/d.
In addition, a number of participants voluntarily reduce production by 1.7 million b/d throughout 2024 and by another 2.2 million b/d in the first half of the year alone. Countries that voluntarily cut production include Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia and the UAE.
It should be noted that the decision of the OPEC countries to reduce production made it possible to maintain a stable situation on the market. And although the aggravation of the situation in the Middle East, the war between Israel and Hamas, as well as the tragic death of the president of Iran, Ebrahim Raisi, certainly affected the market, there was no sharp increase in oil prices. Against the background of the above-mentioned events, the price of a barrel of the Brent brand increased by only a few dollars, but within a few days the prices returned to their former level.
One of the traditional factors affecting the market, as before, is oil reserves in the USA. According to the latest data from the US Energy Information Agency (EIA), they fell by 4.16 million barrels, much more than the forecast of 1.6 million barrels. However, against the background of a sharp decrease in stocks, forecasts of US economic growth have also changed. Economists believe that they are slowing down, so demand is falling. According to the latest data, demand for diesel fuel in the US fell to the lowest seasonal level in the last 26 years.
Supplies of distillate, a fuel used in trucking, heating and heavy industry, fell to 3.67 million barrels per day, according to monthly data from the US Energy Information Administration. This figure marks a downward revision from the agency’s previous estimates.
“The deterioration in the diesel market is a warning signal that broader oil demand growth may be at risk,” said Dennis Kissler, senior vice president of trading at BOK Financial Securities. – Fuel consumption usually falls as the economy slows down, and the economic slowdown heralds a decrease in demand for other types of fuel. This is due to slowing economies in Asia and the US, as well as the way inflation is pushing up consumer spending. People no longer go out and spend money like they did a year ago…”
Distillate supplies, a fuel used in trucking, heating and heavy industry, fell to 3.67 million barrels a day.
OPEC expects OPEC+ oil demand to average 43.65 million bpd in the second half of 2024, representing a 2.63 million bpd reduction in inventories if the group maintains output at April’s level of 41.02 million. barrels per day.
The International Energy Agency, which represents the interests of the world’s largest consumers, believes that OPEC+ oil demand plus reserves in 2024 will be much lower at 41.9 million barrels per day.
In May, Brent oil prices could not develop an increase, as they did not receive new drivers from the supply and demand side. Oil supplies remain stable, but the prospects for demand for the resource in the world’s largest economies in the context of high interest rates and the loss of growth momentum in China appear rather uncertain.
Brent has averaged around $83.50 in 2024 and fell about 6 percent in May, its first monthly decline this year.
Market experts do not rule out a further decrease in oil prices in the range of 76.5-78.5 dollars per barrel. However, in the medium term, the market may be supported by the actions of OPEC+.
In June, seasonal growth associated with the start of summer vacations, increased demand for automotive fuel, as well as a likely decision by OPEC+ to extend quotas is expected to support prices above $85 per barrel. In addition, one should not forget about geopolitics. In particular, any new outbreak of conflict in the Middle East could push the price up again. Although, according to the interviewed analysts, this will not lead to a sharp increase in prices.
In a two-week Reuters poll of more than forty analysts and economists, Brent crude will average $84.01 a barrel in 2024, while U.S. crude will average $79.56, down from April forecasts. , predicted, respectively, 84.62 and 80.46 dollars.
In the coming months, we do not expect any immediate threats to the oil market related to the conflicts in the Middle East or the war between Ukraine and Russia, said the analyst of the Swedish bank SEB Ole Khvalbai. – The market is gradually devaluing the “military premium” associated with these geopolitical risks. However, there is some complacency in this view, and the possibility remains that the market could be unexpectedly affected by sudden events.
