Voluntary Cuts Should Evade 1Q Oil Build, Morgan Stanley Says -- OPIS

The analysts at Morgan Stanley assessing Thursday's OPEC+ announcement believe that even partial compliance should be enough to prevent stock builds in the first quarter and support Brent in the mid $80s.

OPEC+ voluntary cuts had a headline number of 2.2 million b/d, but about 1.5 million b/d of that cut was already known, as Saudi Arabia is carrying over its 1 million b/d cut, with Russia holding onto a 500,000 b/d export cut. The analysts note that the Russian export cut does not necessarily mean a production cut, and it's across crude oil and products, so the bank believes it will be a bit harder to track.

The roughly 700,000 b/d in cuts are coming from Algeria (51,000 b/d), Iraq (223,000 b/d), Kazakhstan (82,000 b/d), Kuwait (135,000 b/d), Oman (42,000 b/d) and the UAE (163,000 b/d).

One issue leading to the delayed meetings was the quotas of the West African OPEC+ members and the Nigeria quota were bumped up by 120,000 b/d to 1.5 million b/d, with Angola's reduced by 170,000 b/d to 1.11 million b/d. Angola, the bank noted, has already indicated that it is not going to abide by the new quotas.

Morgan Stanley analysts are somewhat skeptical and expect only partial compliance. It took a while to negotiate the cuts, which are also not part of formal quotas.

"As a result, the impact on our supply/demand balances is less likely than the headline figure suggests," the report said.

The 1 million b/d extension of cuts from Saudi Arabia was already part of Morgan Stanley's forecast, and it believes that the Saudis will extend that cut through the second quarter of 2024 as well.

"Of the remaining 1.2 million b/d headline cut, we assume that, in the end, only half will eventually be implemented. Hence we have lowered our OPEC+ production forecast for 1Q24 by 0.6 million b/d," the bank said in the report.

Based on the expected cuts, the first quarter supply/demand balance flips from a 0.3 million b/d surplus to a 0.3 million b/d deficit. But anticipate a small surplus in the second and third quarters of 2024 leading to a small build for the year.

The bank believes the current production outlook is enough to support Brent in the mid-$80/bbl area. As a result, Morgan Stanley keeps its price forecast unchanged at $85/bbl.

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 Denton Cinquegrana, [e-mail]; editing by Donna Harris, [e-mail]

(END) Dow Jones Newswires

December 01, 2023 10:19 ET (15:19 GMT)

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