Citigroup: OPEC+ needs to maintain oil production cuts through 2024 to balance global market

(Bloomberg) – OPEC+ will need to maintain its latest oil production cuts throughout next year in order to keep the global market in balance, according to Citigroup Inc.

OPEC and its allies have announced that it will cut production by a further 900,000 bpd during the first quarter, and may prolong the measures if necessary. The 23-nation group led by Saudi Arabia will need to do exactly that to keep prices near current levels, the bank said.

“These cuts do need to be maintained to balance the market through the course of next year,” Max Layton, Citigroup’s global head of commodities research, told Bloomberg TV on Monday. “They can balance this market and keep prices at $70 to $80 if they all work together.”

Traders have so far been unimpressed with the producer group’s pledges, remaining skeptical that it will cut supplies sufficiently to tame a surplus that’s looming in the first half of next year. Prices have retreated roughly 10% since the coalition met on Nov. 30, trading near $75 a barrel in London on Monday.

Yet a range of $70 to $80 a bbl may not be high enough for many of the coalition’s members to cover government spending. Saudi Arabia may need a price closer to $100 a bbl, according to Bloomberg Economics.

Global markets face a surplus of roughly 1 MMbpd during the second quarter, and about 600,000 bpd during 2024 as a whole, said Layton, who recently succeeded veteran analyst Ed Morse in the role at Citigroup.

Still, much of the latest price move is “done” and the market is likely to be buoyed around $75 a bbl as China — the biggest oil importer — rolls out a “significant” package to stimulate its economy, he added.

If OPEC+ were to instead bring back all of their spare oil production capacity, then prices could crash by as much as 50%, Layton said.

This “alternative is so painful” that OPEC+ is likely to stay the course, he said. “It’s within OPEC’s grasp to hold the market together.”