The announcement made by OPEC+ has been assessed by analysts at Morgan Stanley, who believe that even if there is only partial compliance, it should be sufficient to prevent stock builds in the first quarter and provide support for Brent crude oil prices in the mid $80s.
Voluntary Cuts Breakdown
The headline number of voluntary cuts by OPEC+ stood at 2.2 million b/d. However, approximately 1.5 million b/d of this cut was already known. Saudi Arabia will continue its 1 million b/d cut, while Russia will maintain a 500,000 b/d export cut.
Tracking the Russian Export Cut
It is worth noting that the Russian export cut does not necessarily imply a reduction in production. Additionally, this cut encompasses both crude oil and products, making it slightly more challenging to monitor, according to the analysts.
Cuts Breakdown
The roughly 700,000 b/d in cuts will be contributed by Algeria (51,000 b/d), Iraq (223,000 b/d), Kazakhstan (82,000 b/d), Kuwait (135,000 b/d), Oman (42,000 b/d), and the UAE (163,000 b/d).
Delayed Meetings and Quota Adjustments
One factor that caused delays in the meetings was the adjustment of quotas for West African OPEC+ members. The Nigeria quota was increased by 120,000 b/d to reach 1.5 million b/d, whereas Angola’s quota was reduced by 170,000 b/d to reach 1.11 million b/d. The bank highlights that Angola has already indicated its non-compliance with the new quotas.
Partial Compliance Expected
Morgan Stanley analysts maintain a degree of skepticism and anticipate only partial compliance. The negotiation process for these cuts was lengthy, and they are not aligned with formal quotas.
The latest report on global oil supply and demand has revealed that the impact on market balances may not be as severe as initially anticipated. While the headline figure suggests significant changes, a closer analysis suggests a more nuanced outlook.
According to Morgan Stanley’s forecast, the 1 million b/d extension of cuts from Saudi Arabia was already accounted for. The report indicates that Saudi Arabia will further extend these cuts through the second quarter of 2024, in line with the bank’s initial projections.
Regarding the remaining 1.2 million b/d headline cut, the report assumes that only half will eventually be implemented. Consequently, Morgan Stanley has adjusted its OPEC+ production forecast for the first quarter of 2024, lowering it by 0.6 million b/d.
Considering these expected cuts, the supply and demand balance for the first quarter shifts from a 0.3 million b/d surplus to a 0.3 million b/d deficit. However, the bank anticipates a small surplus in the second and third quarters of 2024, resulting in a modest buildup throughout the year.
Despite these developments, Morgan Stanley believes that the current production outlook is sufficient to sustain Brent prices within the mid-$80/bbl range. Consequently, the bank maintains its unchanged price forecast at $85/bbl.
(Reporting by Denton Cinquegrana; editing by Donna Harris)
