The oil market is facing one of the most complex challenges since the pandemic, due to a combination of geopolitical tensions, long-term production strategies and volatile demand, particularly from China and Europe. OPEC+ decisions and uncertainties in the US are currently shaping market conditions and putting pressure on both producers and consumers.

OPEC+: strategy of production delays

OPEC+, an association of 23 oil countries, has continuously extended its voluntary production cuts since 2022. These measures were aimed at stabilizing oil prices post-pandemic slumps. In June 2024, the original plan was to gradually increase production by 2.2 million barrels per day. In the most recent decisions, the following was decided:

• The production increase has been postponed again and is now scheduled to begin in April 2025 at the earliest.
• OPEC+ originally planned to extend its current production cuts until September 2025 completely. This deadline has now been extended by one year, meaning that the cuts will not be reversed until September 2026 be completed.
• This is the third delay in 6 months.

Reasons for the delay

Weak demand:

• China is experiencing slower economic growth, which is dampening demand for oil. In the third quarter of 2024, the Chinese economy grew by 4.6%, the weakest growth in a year and a half. Economic growth of around 4.8% is expected for 2024, with a further slowdown to 4.5% in 20251. The World Bank forecasts real GDP growth of 4.5% for 2024 and 4.3% for 2025. The main reasons for the slowdown in growth are weak domestic demand and consumer restraint, the real estate crisis and uncertainty on the labor market.

• European demand also remains subdued due to the energy transition, economic uncertainties and geopolitics.

Alternative offers:

• Countries such as the USA, Brazil and Canadawhich are not part of OPEC+, are taking the opportunity to increase their own oil production in order to benefit from the higher prices resulting from the OPEC+ production cuts.
• These countries can supply the market with additional oil, which could enable them to gain market share.

Risk of excess supply:

• If these countries continue to increase their production volumes while global demand for oil may stagnate or grow more slowly, this could lead to an oversupply.

- Such an oversupply would lower the oil price again, which would undermine OPEC+'s strategic cuts.

Internal tensions in OPEC+:

• States such as the United Arab Emirates are pushing for higher production volumes, while Saudi Arabia continues to pursue a restrictive policy in order to ensure price stability.
• The UAE produced around 700,000 barrels more than agreed with OPEC+ from January to October 2024. The agreed output for the UAE was 2.91 million barrels per day, but this is excused by a waiver to increase its output by 200,000 barrels per day to 3.2 million barrels per day in 2024.

• Saudi Arabia has extended its voluntary production cuts until the end of June 2024. They reduced production by 1 million barrels per day in addition to an earlier cut of 500,000 barrels per day. Saudi production will be around 9 million barrels per day by the end of June 2024.

Reasons for the tensions:

• The UAE has invested heavily in capacity reserves and is pushing to use them. However, Saudi Arabia is aiming to support oil prices by cutting production.

Price trends and market forecasts

The Brent price is currently at $IOIL00 (+1,02%) which represents a decline of around 18% compared to the peak in July 2024. The price of US WTI oil $CRUD (+1,56%) are in a similar range.

Forecasts

• $C (+0,76%) has revised its forecast upwards and sees an optimistic scenario of 60-65 USD per barrel for the end of 2024 and the beginning of 2025.
• $JPM (+0,1%) forecasts an average Brent oil price of 84 USD per barrel for 2024. For 2025, JPMorgan expects an average price of USD 75 per barrel
• $GS (+0,14%) has revised its forecast for 2024 to an average of USD 81 per barrel for Brent oil.

Long-term prospects

The US Energy Information Administration (EIA) forecasts an average Brent price of USD 61 per barrel for 2025 and 73 USD per barrel for 2030.

Effects on the producing countries

Saudi Arabia:

• Saudi Arabia needs high oil prices to balance its budget. According to forecasts, the threshold is currently around 96 USD per barrelwell above current market prices. This dependency is particularly evident in megaprojects such as Neom City and the Vision 2030which are dependent on stable income. In addition, the organization of events such as the Soccer World Cup 2034 and the Expo 2030 massive budgetary resources.
• Despite these conditions, there are signs of a possible change in strategy. Saudi Arabia could abandon its previous target of an oil price of 100 USD per barrel in order to regain market share. However, this could mean lower oil prices, which would make it more difficult to finance projects and put additional pressure on budget stability.

Russia:

• Oil plays a central role in financing the war in Ukraine. In 2024, almost a third of the Russian state budget is to be used for military spending, which amounts to around 111 billion euros equivalent. The Kremlin is financing this high expenditure through budget reallocations and is relying heavily on oil revenues to fund the war.
• Western sanctions have affected Russian oil exports, but Russia has found ways to partially circumvent them, as I explained in another report (link in the comments). A shadow fleet of oil tankers makes it possible to continue exporting oil despite sanctions. However, revenues are no longer as high as before the sanctions, and lower oil prices could further limit Russia's financial options for the war.
• Despite the sanctions, the Russian economy has adapted faster than expected. Through more intensive trade with countries such as China and other non-Western countries, the circumvention of the G7 oil price cap and increased government spending on the military industry, Russia has been able to take countermeasures. Nevertheless, it remains vulnerable to price fluctuations on the global oil market and faces an acute labor shortage.
• The extension or tightening of Western sanctions could significantly further impact Russia's oil exports and thus revenues, which would pose new challenges to the country's economic stability.

Iran:

• Iran has significantly increased its oil exports since 2021, with an average export of 1.56 million barrels per day in the first 3 months of 2024 (the highest in 6 years). This increase of 1.2 million barrels per day since 2021 is plausible given the low level of exports at the time.
• With the election victory of Donald Trump in the 2024 US presidential elections, however, Iran is facing a possible new round of sanctions. Trump is planning a return to the "maximum pressure" strategy that drastically reduced Iran's exports from 2.5 million to just 350,000 barrels per day within 2 years during his previous term.
• The reintroduction of such sanctions could have a significant impact on the global oil market. Especially China's China's role is crucial here, as it absorbed more than 85% of Iran's oil exports this year. At the same time, Iran has improved its mechanisms for circumventing sanctions, which could reduce the effectiveness of new measures. Overall, renewed sanctions could destabilize the oil market, but the exact extent remains difficult to predict as Iran has significantly increased its ability to maintain trade routes.

Long-term challenges and opportunities

Energy transition and decarbonization

• Europe: Promotes investment in renewable energy and reduces oil consumption.
• China: Is investing massively in electromobility, which will reduce oil demand in the long term

Technological innovations

• Countries such as the USA are focusing on technologies to increase oil extraction from shale oil deposits.
• This could reduce production costs and increase competitiveness.

Role of OPEC+ in the future

• Long-term coordination within OPEC+ is becoming more difficult as national interests increasingly diverge.
• A possible split in the alliance cannot be ruled out if countries such as the UAE and Russia assert their own interests more strongly.

The Iran attacks again Israel with missiles again because Israel is smoking out their network of Hezbollahs in Lebanon and Iran wants to save face so as not to look weak. Everyone wants to have the last word down there. Financial markets and cryptos are falling as a result. Precious metals, oil and defense stocks are rising.

The same thing happened back in April when Israel sent a VIP into the sky. Many YouTubers immediately called for a third world war. They were wrong, of course, because the world has rarely ended before. After a few days it was all over and the iran. Most of the missiles and drones were intercepted and neutralized.

The S&P 500 fell by just 4,46% from 11 to 19 April. That was only six trading days and the panic was in vain again. Buying / buying later was the right decision at the time. Opinions? #gold
#iran
#israel
$BTC (-1%)
$WTI
$IOIL00 (+1,02%)
$ABX (+0,96%)
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$RHM (+0,25%)

JP Morgan ($JPM (+0,1%)) has estimated that the equilibrium price for WTI crude oil ($OD7F) is around US dollar
per barrel per barrel. This means that a price of 60
US dollar
per barrel is considered too low to incentivize sufficient production, possibly leading to an increase to 100 US dollars per barrel next year.

They also forecast that the price of Brent crude oil ($IOIL00 (+1,02%)), the international benchmark, later in 2024 the mark of 100 US dollars per barrel could be tested. This is due to the decision of Russiato cut production in the second quarter by an additional 471k per day in the second quarter. JP Morgan estimates that Brent prices will rise by May the mid 90s US dollar and by September close to 100 US dollars could be reached if no political, supply or demand-side reactions.

The prices for US WTI crude oil ($IOIL00 (+1,02%)) have fallen to 81.76 US dollars per barrel per barrel. The main reason for this price increase was an unexpectedly large reduction in crude oil stocks in the USA. Specifically, the amount of crude oil in storage fell by 1,923
million barrels and the gasoline stocks by 2.954 million barrels. These declines obviously signal a stronger demand for oilwhich is driving prices up.

In addition, the Hurricane Berylcurrently passing through the Caribbean has led to further price increases contributed to further price increases. A hurricane can disrupt oil production and refineries along the US Gulf Coast which could reduce the available supply of oil. These potential production outages will lead to a further shortage supply and drive prices up further.

The USA support Angolaone of Africa's largest oil producers, in building up an industry to process critical minerals. This is intended to reduce dependence on oil ($IOIL00 (+1,02%) ).

The cooperation is to be supported by the US-led Minerals Security Partnership which supports projects along the entire supply chain for clean energy supply chain. Angola plans to use this cooperation to grow economically. In addition, the USA clean energy projects in Angola. Angola Angola, including the construction of two solar solar power plants with a loan of over 900 million US dollars.

The American Petroleum Institute (API) yesterday released positive inventory figures published yesterday. Interestingly, the time spreadsan indicator of the relationship between short term and long term oil ($IOIL00 (+1,02%) ), have narrowed further, indicating a possible stability in the market, but we must not forget the geopolitical risk.

API's data shows that US crude oil inventories in the last week by 3.23 million barrels last week, while the estimates of the market point to an increase of 1.3 million barrels were. The API also reported a decline in crude oil inventories in Cushing by 0.9 million barrels. On the product side, the gasoline stocks by 0.59 million barrels while distillate stocks fell by 0.72 million barrels have risen. This indicates that the demand for gasoline has increased, while possibly more distillates such as heating oil were produced.

The Russian Ministry of Economy estimated that the crude oil exports will increase slightly this year, mainly as a result of Russia's agreement to end production cuts under the OPEC+ plan to stabilize the oil oil market to stabilize the oil market. China is also planning to reduce its oil product exports in May.

⚠️ last UPDATE 03:12 ⚠️

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Price Tatget for oil ($IOIL00 (+1,02%) ): 100$

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Short summary:

The Iran has launched a massive drone attack on Israel by launching more than 50
drones towards Israeli airspace. In response, both the Iranian as well as the Israeli airspace were closed, and Jordan also followed suit. US President Biden and Scholz, expressed their support for Israel and condemned the actions of Iran.

▪️Iranischer🇮🇷 Drone attack on Israel🇮🇱announced.

▪️🇮🇷 Drones reported on the way to 🇮🇱

▪️🇮🇷 Drones over Iraq🇮🇶 spotted during the attack on 🇮🇱

▪️🇮🇱 Preparation for direct attack of 🇮🇷 announced.

▪️ Closure of 🇮🇱 airspace reported.

▪️Schließung of the 🇯🇴 airspace due to the 🇮🇷 drone attack on 🇮🇱.

▪️🇮🇷 Drone attack on 🇮🇱 confirmed.

▪️Notfalltreffen of the 🇺🇳 Security Council convened.

▪️🇮🇱 announces measures to counter all air threats to counter all air threats.

▪️🇮🇱 calls Emergency meeting of the 🇺🇳 Security Council convenes.

▪️🇺🇸 and 🇩🇪🇦🇹 express their support for 🇮🇱 and condemn the 🇮🇷 attack.

▪️Telefonat between Biden and Netanyahu

▪️🇺🇳 Secretary General condemns the 🇮🇷 attack on 🇮🇱

▪️🇺🇸🇬🇧 Fighter jets shoot down 🇮🇷 drones in 🇸🇾 down.

▪️Berichte about injuries caused by 🇮🇷 attack on 🇮🇱.

▪️Angriff on base with 🇺🇸 troops near the airport Erbil airport reported in 🇮🇶.

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The impact of the conflict on oil ($IOIL00 (+1,02%) ) are considerable, as the risk of supply disruptions will lead to a major price increase. The war in the Gaza Strip alone has already had some impact on oil prices.

The Iranian attack on Israel will put additional pressure on oil prices as will the voluntary cuts of 2.2 million barrels per day by OPECwhich has been extended to maintain market stability. I

forecast that the price will remain at around 100 US dollars will end up

Indiawhich is one of the largest oil consumer andimporterswill be particularly vulnerable to further levels of conflict. The impact of the Gaza war on India has been minimal so far, but the current escalation will put a big dot in the big picture, on the oil supply India's oil supply and even jeopardize it as India is heavily dependent on imports from the Middle East imports from the Middle East.

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My forecast for Zinssenkung🇺🇸:

🟢Current forecast: September 24

🔴Previous forecast (October 23): July 2024

Rationale:

The inflation indicates that the FED will refrain from cutting interest rates for the time being. The estimates for an interest rate cut in June have fallen significantly and I expect that the FED at the earliest in September could take action.

The core inflationfor the March amounted to around 3,8% and is clearly above the estimates. In general, current inflation leaves no scope for interest rate cuts, as a normalization of the CPI data are low, which of course makes an interest rate hike unlikely in the foreseeable future.

Especially the sectors healthcare and transportation are contributing to inflation remaining at a high level overall. High petrol prices, which are driven by high oil prices ($IOIL00 (+1,02%) ), the FED is basically only able to maintain the current interest rate. The oil prices have been driven up by EIA reports and geopolitical tensions, such as the Ukraine conflict and of course the Houthi rebels have added significantly to this.

Given these circumstances, a rate cut in June is unlikely. In my opinion, July is also unlikely to see no interest rate cut either. September is therefore the most likely time for a relaxed easing.

What is important to consider now? I would focus strongly on commodities and US elections.

All eyes are currently on oil ($IOIL00 (+1,02%) ), as the prices for future oil supplies are lower than the current spot price, which is called backwardation. Normally, backwardation means that traders estimate that prices will fall in the future, but currently it is different, as traders expect oil inventories to fall in the course of the year 2024 will continue to fall and the price will therefore rise.

One of the reasons is the extension of the production cuts by the OPEC. Saudi Arabia etc. have decided to reduce their oil production in order to stabilize prices. This has led traders to believe that oil supplies could become scarcer in the future.

• [HQ, Vienna]

In addition, there is a shipping agreement between China and Russia with the Houthi rebels in Yemen. Houthi rebels are currently disrupting important sea routes through which a lot of oil is transported. In other words, the geopolitical factor will remain relevant in the long term. Around 12% of the global oil is transported through the Red Sea.