The commodities team at Citi published a commentary Tuesday that lays out expectations for Sunday's meeting of OPEC and its allies.
Not surprisingly, the investment house retains a bearish view. They observe that the great "unwinding" of OPEC+ production cuts first rendered in June 2024 is likely to again be delayed. The cartel is dealing with a notably tricky situation since it is navigating through weak global demand as well as the promises of stiff tariffs by U.S. President-elect Donald Trump and geopolitical uncertainty.
Sunday's meeting will be virtual, and Citi believes that suggests "relatively little disagreement" among members as to policy. But Citi analysts are unsure as to whether the cartel will roll forward cuts or proceed with some portion of the planned unwind.
One sticky problem relates to production from the United Arab Emirates. The UAE is set for a baseline quota increase that would gradually change over nine months. The UAE has an unprecedented amount of spare capacity since it is producing just 3.2-million b/d but has a capability of 4.85-million b/d.
But Citi's overall base case for OPEC+ is that the group will extend the cuts first through all of the first quarter 2025 and then subsequently avoid output increases through the entire year. The bank still believes that global supply will outpace demand by about 1-million b/d, even as the cuts persist. They maintain projections of an annual 2025 Brent average of $60/bbl with $65/bbl expected in the first quarter.
The cartel also needs to deal with better compliance from three members - Russia, Iraq and Kazakhstan. Citi analysts warn that Trump's threatened 25% tariffs on imports from Mexico and Canada will increase costs for U.S. refiners and consumers. But they also believe that any de-escalation of the Russia/Ukraine conflict could lead to dramatically lower prices.
Analysts maintain that Trump trade tariffs and a pro-fossil fuel policy are directionally bearish for oil prices. They believe OPEC+ should recognize this before unwinding the cuts.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
-- Reporting by Tom Kloza, tkloza@opisnet.com; editing by Steve Cronin, scronin@opisnet.com
(END) Dow Jones Newswires
November 27, 2024 14:08 ET (19:08 GMT)
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