According to StanChart, the path of least resistance for oil prices is lower, with prices likely to remain low in the coming months before beginning a gradual recovery due to a sharp fall in U.S. oil output.
The eight OPEC+ countries that provided additional voluntary output cuts in 2023 met again on Saturday, with the May meeting ending with a resolution similar to the April meeting. Once again, OPEC+ agreed to accelerate the pace of unwinding of production cuts, with output targets for June (excluding compensation cuts) increased by 411,000 barrels per day, equivalent to three monthly increments under the original schedule. Commodity analysts at Standard Chartered have predicted that the June meeting will result in further acceleration, bringing the cumulative unwinding of the 2.2 million barrels per day (mb/d) cuts to 1.4 mb/d.
StanChart says the willingness of OPEC+ to bring in more oil to the markets at a time when oil prices have crashed can be interpreted in several ways.
First off, global crude inventories are low enough to create a window to scale back the voluntary cuts, a window that will remain open until market surplus finally arrives.
Second, Saudi Arabia is keen to make a statement against the likes of Kazakhstan and Iran, which have repeatedly violated their OPEC+ quotas. The commodity analysts say there’s been little progress made by these countries in complying with their compensation plans, with Chevron Corp’s (NYSE:CVX) latest earnings call sending some alarming signals. In the earnings call, Chevron CEO Mike Wirth reported that there had been no discussions with the Kazakh government over production restraints at the Tengiz field, adding that he was unaware of anything that might result in any production restraint.
The latest OPEC survey of secondary sources put Kazakh crude oil output at 1.852 mb/d in March, a good 384 kb/d above its target. Kazakhstan also failed to deliver on 38 kb/d of promised compensation cuts in March, taking its total overproduction in the month to 422 kb/d. The overrun in April is also expected to be substantial. While the other members of the OPEC+ eight produced a combined 612 kb/d less y/y in March, Kazakhstan produced 240 kb/d more y/y.
Under the revised compensation schedules Kazakhstan submitted in April, it promised to not only meet its nominal target but also as compensation to cut more than 100 kb/d in each of the seven months starting May, with the compensation cuts peaking at 160 kb/d in October.
Delegates say Saudi Arabia is considering releasing the rest of the 2.2 million barrels a day in large tranches if recalcitrant members like Kazakhstan fail to stick to their quotas.
Previously, the Financial Times reported that Saudi Arabia is willing to ditch its previous oil price target of $100/bbl as it prepares to open the taps, effectively resigning itself to a period of lower oil prices. Saudi Arabia and OPEC+ planned to gradually unwind the 2.2 million barrels per day over a period of nearly two years, stretching into late 2026. However, the group fast-tracked nearly half of that output over a short period.
Oil prices have continued to weaken after the May 3 meeting, with front-month Brent coming
within $0.10 per barrel (bbl) of its 2025-low after sinking to $58.50/bbl in intra-day trading on 5 May, the lowest front-month settlement since 5 February 2021.
According to StanChart, the path of least resistance for oil prices is lower, with prices likely to remain low in the coming months before beginning a gradual recovery due to a sharp fall in U.S. oil output. However, there is some technical support in the short-term, with short-term fundamentals remaining fairly positive.
StanChart’s proprietary machine-learning oil price model, SCORPIO, sees some scope for short-term support, indicating a $1.27/bbl w/w increase to settlement on 12 May. Previously, we reported that StanChart cut its 2025 oil price forecast by $16 per barrel (bbl) to $61/bbl and also lowered its 2026 forecast by $7/bbl to USD 78/bbl thanks to Trump’s tariffs.
Meanwhile, the EU has had a strong start to its gas injection season, with inventories standing at 47.58 billion cubic metres (bcm) on 4 May. The w/w build clocked in at 2.85 bcm, 33% above the five-year average change. The deficit relative to the five-year average has now narrowed for 10 consecutive days and stands at 10.97 bcm, the lowest since mid-February.
The strong build in inventories is being helped by weak demand, with StanChart estimating that
EU gas demand declined 7.5% in April. Net imports were 26.60 bcm, 321 million cubic metres (mcm) higher m/m but 26 mcm lower y/y. Inventories increased by 6.03 bcm m/m in April, 1.97 bcm more than they increased in April 2024.
By Alex Kimani for Oilprice.com
