By Giovanni Staunovo
Back in November 2023, eight OPEC+ member states announced additional voluntary production cuts of 2.2mbpd for 1Q24.
As expected, the eight OPEC+ member states announced on Sunday that those cuts will be extended for another three months into the second quarter of 2024.
There was, however, a surprise from Russia, as it announced it would now cut production from previous crude and refined product exports.
During 1Q, the country pledged to cut its crude and refined product exports by 500,000 bpd. Although winter had made production cuts difficult to implement, spring is approaching, and Russia intends to now reduce its crude production by 350,000 bpd in April, 400,000 bpd in May, and 471,000 bpd in June.
Additionally, Russia’s exports will be reduced by 121,000 bpd in April and by 71,000 bpd in May. If fully implemented, these new cuts will remove additional barrels from the market and help keep the oil market undersupplied, in our view.
In line with OPEC+’s proactive, pre-emptive, and precautionary stance, the “OPEC+ eight” also announced that those voluntary cuts will be gradually phased out, to avoid bringing back too many barrels at the same time.
Market participants will continue to track crude and refined product exports to assess the compliance level of those production cuts.
We retain a modestly positive outlook, targeting Brent at USD 86 a barrel by mid-year, as we expect the oil market to remain slightly undersupplied this year.
Hence, we continue to advise investors with a high risk-tolerance to sell Brent’s downside price risks or to add exposure to longer-dated Brent oil contracts.
Giovanni Staunovo is Strategist, Chief Investment Office at Global Wealth Management, UBS
UBS Chief Investment Office’s investment views are prepared and published by the Global Wealth Management business of UBS Switzerland AG (regulated by FINMA in Switzerland) or its affiliates, part of UBS Group AG. UBS Group includes Credit Suisse AG, its subsidiaries, branches and affiliates. The investment views have been prepared in accordance with legal requirements designed to promote the independence of investment research.
