OPEC+ faces tough decision on unwinding oil output curbs
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OPEC+ is facing a tricky landscape as the cartel decides whether — and how aggressively — to plow ahead with plans to start unwinding oil output curbs next quarter.
Why it matters: The group's production levels influence global oil prices and by extension gasoline costs — something with extra salience in election years.
The big picture: Weak economic signals from China and mixed metrics in the U.S., among other places, are drags on demand growth.
- Multiple forecasters have trimmed their 2024 and 2025 estimates. "This poses a problem for OPEC," the Eurasia Group said in a note.
- Unless the cartel changes course, "non-OPEC supply and weak demand growth will likely weaken the price environment and pull the Brent per-barrel price below $80 by the end of 2024," Eurasia adds.
The intrigue: Middle East conflict is a huge wild card as market watchers await how Iran will respond to Israel's killing of a Hamas leader in Tehran.
State of play: Tracking oil thirst isn't an exact science.
- DOE's stats arm last week trimmed its 2025 forecast by 200,000 barrels per day to 1.6 million barrels per day, while leaving its 2024 estimate unchanged at an increase of 1.1 mbd.
- The International Energy Agency sees growth under 1 mbd this year and next, and slightly cut its 2025 estimate this week.
OPEC has also lowered estimates, albeit from a much higher base — the cartel this week projected 2024 growth at a "healthy" 2.1 mbd and 2025 at 1.8 mbd.
- Eurasia is more pessimistic, projecting 800,000 barrels per day of growth in 2024 and into next year.
Catch up quick: OPEC+ plans to unwind 2.2 mbd of voluntary curbs over a year starting in October but says plans could change based on market conditions.
- "A delay in starting the tapering in October, or pausing it afterward, is very much on the table," Bob McNally, president of Rapidan Energy Group, said via email.
- But he doesn't yet see odds of a delay over 50%, noting that OPEC+ leaders are more confident in firming supply and demand fundamentals than IEA and others.
Meanwhile, a detailed Reuters piece explores how U.S. shale producers keep finding efficiencies that allow more production without more spending.
The higher-than-expected output is complicating OPEC+ plans, a Macquarie Group analyst tells the outlet.
What we're watching: S&P Global analyst Payam Hashempour said next month will provide firmer signals about Q4 OPEC+ output.
- That's when schedules for loadings onto ships and state oil giants' next monthly selling prices emerge.
- "September will certainly give us a better idea of which direction we're going," he said on the Platts Oil Markets podcast.
