Reuters reported that analysts at UBS expect the Organization of Petroleum Exporting Countries (OPEC) and its allies to continue their voluntary production cuts past December.
The cartel will meet on December 1, where it will determine the output policy for the future.
There are concerns that the crude oil price may be further impacted if OPEC+ decides turn on taps in January.
Eight members of the OPEC+ cartel agreed in October to extend their steep voluntary production until the end December.
Since the beginning of the year, eight members of OPEC+, including Saudi Arabia, Russia and Kuwait, have adhered to a voluntary production cut of 2.2 million barrels.
The voluntary production cuts were due to expire by the end of November. Meanwhile, the cartel was scheduled to increase their daily production to 180 million barrels.
OPEC extended these cuts for another month until the end of December due to lower demand and concern over an excess on the market.
The market dynamics are not conducive to production increases
UBS analysts noted that the current market conditions did not support an increase in production from January.
UBS analysts said that OPEC+ is likely to extend their voluntary production cuts for another three months until the end of March 2020.
UBS analysts argue this cautious approach provides the alliance flexibility to adjust production in response to unexpected disruptions or stronger-than-anticipated demand later in the year, according to the Reuters report.
According to the International Energy Agency, even if OPEC+ agreed to extend their production cuts, the market would still have a significant oversupply.
The IEA announced earlier this month that the production of non-OPEC+ nations is expected to rise by 1.5 million barrels a day in 2019.
This would be enough to offset the growth in global oil consumption in 2025.
According to estimates by the Paris-based agency, oil demand will grow by less 1 million barrels per a day in 2019.
If OPEC increases production, oil prices could fall
UBS analysts have said that if OPEC+ increased output in January, Brent crude oil could fall below $70.00 per barrel depending on the perception of traders.
The agency believes the efforts of Kazakhstan and Iraq in addressing overproduction during early 2024 months will play a major role in supporting OPEC’s cautious approach if they decide to extend their cuts.
UBS doesn’t agree with Saudi Arabia, which recently said it preferred to gain lost market share than increase prices.
The OPEC has historically preferred stability to chasing market share.
Brent prices, according to the agency’s forecast, are expected to stay around $75 per barrel due to OPEC+ policy.
ANZ Research stated:
The market will be affected by any further delay of OPEC’s plan beyond December to phase out their voluntary production agreements.
Demand problems
Oversupply on the oil market is exacerbated by the poor growth of demand around the globe, particularly in China.
China is the largest crude oil importer.
Imports from the country have decreased in recent months, which indicates a lower growth of demand.
Analysts at Vortexa say that the demand for oil in China is expected to stay at its current level.
Analysts do not expect much growth in 2025 from the second largest economy of the world.
China’s economy has been in trouble and with the growing number of electric cars, the demand for oil will be on the decline.
Brent crude was trading at $74.41 a barrel on the Intercontinental Exchange, down 0.3% since the previous close.
This post OPEC+ could extend output cuts to avoid oil glut: UBS can be modified as new updates unfold
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