Synopsis:

ANZ assesses the implications of OPEC+’s recent decisions on Brent crude prices. They believe the market's reaction to recent cuts may have been overstated and highlight the potential for Brent to reach $90/bbl if macro conditions align.

Key Points:

1. OPEC+ Production Cuts: OPEC+ announced in June that its production cuts of 2mb/d, effective from October 2022, would continue until the end of 2025. A smaller group of voluntary cutters, initially reducing 2.2mb/d, will start phasing out cuts from Q4 2024.

2. Market Reaction: The market’s sharp sell-off following this announcement is seen as overdone by ANZ. They believe that the market can absorb the additional oil without significantly increasing inventories.

3. Macro Environment and Oil Prices: With deepening macroeconomic concerns and loosening fundamentals, OPEC+ will need to adjust its strategy to maintain oil prices above $80/bbl. ANZ projects Brent crude could reach $90/bbl by year-end, contingent on macroeconomic conditions.

4. Potential Strategy Shift: If OPEC+ reaffirms its plan to phase out voluntary cuts, it might indicate a shift in strategy from price support to maximizing market share. Historically, such a strategy led to oil prices falling below $50/bbl in 2015-16.

Conclusion:

ANZ forecasts that Brent crude could rise to $90/bbl if macro conditions are favorable and if OPEC+ adjusts its strategy to address changing market dynamics. The recent market reaction to OPEC+’s decisions may have been overstated, and future oil price movements will depend on both OPEC+ policies and broader economic conditions.