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Having dropped to the lowest since February 2024 – Brent oil is staging a comeback of sorts, and all signs indicate it will be back to the mid-80s as there is too much at stake for Opec Plus alliance. The Opec meeting outcome took the market by surprise, and it was widely construed as signs of weakness in terms of members’ capacity to continue curbs, and also an acknowledgement of suppressed demand extending deep into 2025.

While there is little doubt that the decision to extend cuts in excess of 3.6 million barrels a day to the end of 2025 is indicative of Opec’s realization of uncertain and likely suppressed demand in the near-term, there is more to it than what meets the eye. The extension of production cuts also signals the member countries have shown renewed confidence on the group leaders, Saudi Arabia and Russia – for agreeing to extend cuts beyond the original expiration date of June end 2024.

The rollback of voluntarily cuts is the one that has fueled the most bearish sentiments. Opec Secretariat has been quick to respond to the market reactions, reiterating its commitment to favorable prices, and that the unfreezing of voluntary cuts is not set in stone.

The language of the communication sent out by Opec suggests just that, as any sustained downward pressure on prices will invariably lead to a proportionate response by the cartel – and a delay in rolling back the voluntary cuts is pretty much on the cards, The Saudi Energy Minister has publicly warned of reversing the planned production increases. All of this should be enough signs that the bears may not find enough legs to run another mile from current levels.

On the demand front, imports by China have been well below expectations, keeping global demand growth in check. All eyes are on 2H 2024 demand as uptick in travel is expected to make a significant contribution to overall demand growth. Global macroeconomic data is offering support as equities have reacted positively to an expected reduction in European interest rates. The US Fed next policy move is also starting to be priced in and should offer momentum to demand projections deeper in 2024.

What is clear after Opec Plus decision is that the cartel’s view on global demand has not altered a great deal from late last year. It is also clear that even if other members do start bringing production back post September 2024 – Saudi Arabia and Russia can always step in to make up for the added production. Saudi Arabia has time and again shown it will do whatever it takes to keep oil prices in a range where budget balancing remains in play – and most observers agree that range is not under $80/bbl.

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