OPEC+ cuts unlikely to bring the market to balance over 1Q20 - ING

In the view of the analysts at ING Bank, the latest OPEC+ decision to deepen the output cuts are unlikely to have any significant effect on the market.

Key Quotes:

“Oil markets got a boost on Friday after OPEC+ agreed to deepen production cuts over 1Q20 by 500Mbbls/d, taking total cuts to 1.7MMbbls/d. While cuts of 500Mbbls/d are not overly bullish, given that OPEC+ are already over-complying with the current deal, what made the announcement constructive (and a surprise to the market), was the fact that Saudi Arabia said it will produce around 400Mbbls/d below its new quota level. This would effectively take OPEC+ cuts to 2.1MMbbls/d. 

While this is clearly more than the market was expecting and has been constructive in the immediate-term, the key question is whether this is enough. We do not expect that these cuts will bring the market to balance over 1Q20.

However, the cuts will take a significant surplus down to less daunting levels.  The deal is still set to last only through until the end of 1Q20, while the balance sheet continues to show a large surplus over 2Q20.

Therefore, assuming no significant changes in expectations of non-OPEC supply growth, we would expect that OPEC+ would have to roll over the deal through until the end of June 2020, though the level of cuts will likely revert back to 1.2MMbbls/d from the current 1.7MMbbls/d. This decision will likely be made in early March when OPEC+ is set to meet once again. “