Analysts at J.P. Morgan anticipate that the OPEC alliance will likely opt to maintain current production targets during their forthcoming meeting scheduled for June 1. In a recent report provided to Rigzone, the analysts highlighted concerns regarding burgeoning inventories and oil prices below levels required to sustain domestic spending, which advocate for prudence in considering production increases.
According to the report, OPEC’s cautious approach is expected to drive a reduction in stocks from May through August, potentially bolstering prices and steepening backwardation in the market. The analysts projected a fair-value model indicating that Brent crude could average $88 per barrel between May and September, with a peak of $92 per barrel in September.
In April, both crude and product inventories surged beyond average seasonal levels, nearly reversing first-quarter draws and alleviating physical tightness in the market. Despite a notable 13% rally in the first quarter, Brent oil concluded April at $87.86, almost mirroring its starting position.
However, oil prices experienced a brief setback in late April, dropping approximately three percent to a seven-week low, indicative of sudden liquidation trading. The weakening of key time spreads and the softening of Brent prompt spread further underscored market dynamics.
The analysts emphasized that their fundamental view on oil remains unchanged, with Brent averaging $89 in April compared to their fair value of $86. Looking ahead to May, projections suggest a continuation of robust pricing, preceding the pivotal OPEC meeting in June.
Addressing the strategic rationale behind OPEC’s decision-making, the report highlighted ongoing discussions regarding potential unwinding of voluntary supply reductions. Analysts argued that while global demand growth remains strong, it is outpaced by non-OPEC supply expansion, necessitating OPEC’s production cuts to stabilize the market.
However, concerns arise for 2025, when global oil demand growth is anticipated to decelerate amidst increasing decarbonization efforts and post-pandemic demand normalization. Against this backdrop, analysts advocated for strategic adjustments in OPEC+ supply to ensure operational flexibility in the future.
Analysts from Standard Chartered Bank echoed similar sentiments, suggesting that OPEC could increase output by over one million barrels per day in the third quarter without inflating inventories. Yet, uncertainties regarding the timing and magnitude of market signals may influence ministerial decisions.
Looking towards the June OPEC+ meeting, Bjarne Schieldrop, Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), posited that the group would adjust production to align with desired oil prices, typically aiming for $85 per barrel or higher.
The broader context surrounding OPEC+ cuts was also outlined in reports from Morningstar DBRS, which highlighted the additional voluntary production cuts implemented in January 2024. Despite these measures, increasing production from non-OPEC countries and elevated spare OPEC production capacity continue to pose challenges to market stabilization.
As anticipation builds ahead of the June meeting, industry experts closely monitor developments within the OPEC alliance, recognizing the pivotal role it plays in shaping global oil markets.