Oil market crashes to deter OPEC+: No need for additional supply!
Citigroup pointed out that the sharp drop in oil prices to the lowest level in over two years indicates that the market does not need additional OPEC+ supply. The global benchmark Brent crude oil price fell below $70 per barrel, leading OPEC to postpone its production increase plans. Analysts believe that in order to balance the market, OPEC+ may need to cut production by 1 million barrels per day by 2025. Traders are bearish on the future outlook, expecting demand to deteriorate and supply to potentially exceed expectations. Nevertheless, analysts still consider the outlook for oil prices relatively optimistic and do not expect them to remain below $60 per barrel in the next three months
Citigroup Group stated that the oil price has plummeted to the lowest level in over two years, indicating that the market does not need additional OPEC + supply.
The global benchmark Brent crude fell below $70 per barrel on Tuesday for the first time since December 2021, but rebounded on Wednesday.
OPEC and its allies recently delayed the planned fourth-quarter production increase by two months. Citigroup stated that if the alliance wants to balance the market with a significant increase in supply from non-group oil-producing countries, further production cuts may be needed next year.
"I think the market is trying to send a strong signal to OPEC that there is no room to increase any more supply," said Max Layton, head of commodity research at the bank, in an interview with Bloomberg TV. "Our estimates show that OPEC + needs to cut an additional 1 million barrels per day for the entire year of 2025 to balance the market."
He added that traders are "generally bearish" about the outlook for next year.
As the oil market faced significant selling on Tuesday, OPEC lowered demand growth expectations for the second consecutive month, Chinese crude oil imports are expected to slow down in 2024, and 8 OPEC + member countries are also expected to increase production in December.
"Traders expect the demand outlook to deteriorate, and they expect the supply entering the market to be higher than our forecasts so far," Rystad Energy analyst Claudio Galimberti told CNBC's "Squawk Box Asia" on Wednesday.
Galimberti stated that some traders are concerned that Brent crude prices may head towards $60 per barrel, but this level of bearish sentiment is unfounded. The analyst said that the supply and demand fundamentals indicate inventory declines, but prices will only rise if the Chinese economy rebounds and OPEC + adheres to its production quotas.
"We still believe that the oil price outlook is relatively constructive," Galimberti said. "We believe that oil prices will not sustain at the $60 per barrel level in the next three months."