Goldman Sachs says the OPEC+ meeting outcome is bearish for oil

The summary of the Sunday OPEC+ meeting is that:

• the cartel agreed to extend cuts of 3.66 million bpd by a year until the end of 2025 (were due to expire at the end of 2024)
• agreed to prolong the cuts of 2.2 million bpd by three months until the end of September 2024 (were due to expire at the end of June 2024)
• OPEC+ will gradually phase out the cuts of 2.2 million bpd over the course of a year from October 2024 to September 2025.

On the face of it OPEC+ have laid out a clear plan to taper voluntary cuts (OPEC+ have inserted a caveat, which is, in a nutshell, ‘subject to market conditions’). This should result in a tighter 2024 H2 / 2025 H1 than what was expected. On the demand side, its increasing, especially as China’s economy gradually improves (emphasis on gradual, it’s a bumpy road as Friday’s May PMIs indicated):

• OPEC+ estimated that demand for oil this year will increase by 2.2 million barrels a day

Nevertheless, Goldman Sachs say the outcome of the meeting is bearish for the oil price, and say Brent is at risk of falling from its estimated range of $75 to $90 / bbl.

• “While a clear production plan further reduces the probability of an outright price war and supports the notion that crude oil prices will be range bound, the risks to the range itself are now skewed to the downside”

GS citing:

• planned output cuts aren’t enough to curtail an oversupply of oil
• the Sunday OPEC+ agreement allows eight countries including Saudi Arabia, the United Arab Emirates and Iraq to gradually boost production through the end of 2025
• GS estimate demand growth of 1.5 million barrels a day, well under the OPEC+ estimate

Goldman Sachs is sceptical about the OPEC+ caveat that an increase in output “can be paused or reversed subject to market conditions,”:

• “We are surprised that these countries are now announcing a detailed unwind schedule in a context of recent upside surprises to inventories”
• “The communication of a surprisingly detailed default plan to unwind extra cuts makes it harder to maintain low production if the market turns out softer than bullish OPEC expectations”

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Oil futures trade begins for the week at 6pm US Eastern time. Faten your seatbelts.