Deutsche Bank: OPEC+ policy shift casts downward shadow on oil prices for next two years

Deutsche Bank sees OPEC+'s decision to boost oil output as a bearish bet on prices over the next two years, creating uncertainty last seen when the coronavirus pandemic disrupted demand.

Eight OPEC+ member states, led by Saudi Arabia and Russia, agreed to gradually remove voluntary production cuts of 2.2 million barrels per day from October 2024 to September 2025.

“It is inconceivable that the market can absorb anything close to 2.2 million barrels per day,” said Deutsche Bank analyst Michael Hisue.

He added: The increase in supply is similar in size to the supply surplus of 2.3 million barrels per day recorded during the first year of the Corona pandemic.

Uncertainty at highest level since pandemic

Goldman Sachs also described the OPEC+ decision as a bearish surprise that creates downside risks to prices, while TD Securities warned that the situation could start to deteriorate rapidly in 2025.

Hisoe stressed that the uncertainty surrounding the decision had not occurred since the disruptions to oil demand during the pandemic, and the conflicting supply negotiations involving Russia, Mexico, Saudi Arabia and the United States.

Brent crude has given up most of the gains recorded since the beginning of this year, recording gains of only 1.8% since the beginning of 2024.

With the market’s appetite for large amounts of oil limited, Deutsche expects the oversupply to reach close to 1 million barrels per day, with OPEC+ pushing to halt the plan in a few months. He said this would result in a modest surplus of 600,000 barrels per day in 2025.

Deutsche cut its oil price forecast by about 10% for 2025, according to the latest scenario, as the increase in supply is expected to push the price of US crude below $70 per barrel, and Brent at $75 per barrel by the end of next year.

Hisoe stressed that the increase in supply is a warning shot to non-OPEC producers, especially the United States, which gained market share when the OPEC+ bloc cut production.

Accordingly, Deutsche lowered its forecast for US crude supply by 100,000 and 300,000 barrels per day for this year and 2025, respectively.