Implications of OPEC+ meeting for H2 2023

The decision by OPEC+ to extend current production cuts and an additional voluntary 1 million b/d reduction for July from Saudi Arabia should provide support for prices in the rest of 2023, according to Wood Mackenzie.

“Setting aside various markets’ fears of possible global recession, the outlook for oil demand and supply remains broadly supportive for Brent prices in the second half of 2023,” said Ann-Louise Hittle, Vice President Macro Oils, at Wood Mackenzie. “We forecast a significant implied global stock draw in Q3 2023, and we expect the OPEC+ 4 June decision to increase the implied stock draw for that quarter due to mostly the additional voluntary production cuts Saudi Arabia announced.”

Wood Mackenzie Macro Oils Service projects global oil demand to rise 2.4 million b/d on an annualized basis, eclipsing a 1.5 million b/d year-on-year gain in total liquids supply, with Brent forecast to average $84.70/bbl in 2023. Wood Mackenzie expects global oil demand to surpass total liquids supply in Q2 through Q4 2023, provided market concerns about economic weakness ease.

“OPEC+ faced several tricky issues at its biannual meeting,” said Hittle. “Mainly, ongoing fears in the greater financial markets that China’s economic recovery is not happening and therefore demand growth is seen as a risk, as well as the geopolitical complications of reorganizing, reassigning and agreeing on an additional production cut for the rest of this year.”

However, Hittle points out that “by OPEC+ rolling over the current agreement, and with Saudi Arabia announcing a further voluntary cut, the group has gone some way towards achieving its goal of supporting prices.”

Wood Mackenzie’s latest outlook shows oil demand growth of almost 1 million b/d for China on an annualized basis in 2023, with about half of that growth in gasoline and jet fuel due to a robust recovery in personal mobility.