OPEC+ has extended production cuts of 1.7 million barrels per day into Q2 2024.

This has resulted in an increase of $5 per barrel to Rystad Energy’s previous projection.

As a result, Brent is now forecasted to average 85 for 2024.

Voluntary cuts will continue into Q2, preventing stock accumulation and keeping the market in deficit. This will add price pressure.

Strong demand growth in H2 is expected due to Asia and the resilient US economy, even amid high interest rates.

The market will remain in deficit in H2 even if OPEC+ fully unwinds the cuts at the end of Q2.

By extending the voluntary cuts, OPEC+ crude production is anticipated to average 34.6 million bpd in the second quarter of this year before increasing to around 36.3 million bpd in the second half of the year, assuming the cuts will not be extended into the third quarter.

It is interesting to note that OPEC+'s recent strategy is focused on supporting prices rather than expanding market share.

This approach indirectly benefits the US shale sector, which has reached an unprecedented production level of over 13.3 million bpd of crude and condensate.

Despite this trend, OPEC+ does not appear to be overly concerned, at least not yet.

Rystad Energy’s analysis suggests that by June this year, OPEC+'s crude (excluding Iran, Venezuela, Mexico, and Libya) share of global liquids supply is projected to drop to its lowest point since the formation of the OPEC+ alliance in 2016.

In the middle of the oil price war in April 2020, OPEC+ crude accounted for 41.4% of global supply.

After the massive 10 million bpd cut, that share dropped to 35% in May 2020.

Since then, OPEC+ crude has gradually regained market share in 2021 and 2022 as official cuts were gradually unwound.

Following the implementation of the 2 million bpd production cuts in October 2022, the 1.16 million bpd voluntary cut in April 2023, the 1 million bpd voluntary cut from Saudi Arabia since July 2023 and the latest 1.7 million bpd voluntary cut announced in November 2023, OPEC+ crude share was 34.3% in January this year.

The just-announced extension of the voluntary cuts will bring that share down to 33.9% by June – the lowest share ever for the group.

One of the major questions in the oil market is whether OPEC+ needed to extend the voluntary cuts to prevent a market surplus.

To answer this question, we can analyze the market balance in the second quarter of this year using the forecasts from three main agencies - the US Energy Information Administration (EIA), the International Energy Agency (IEA) and OPEC - as well as Rystad Energy, before Sunday's announcement.

According to Rystad Energy, OPEC+ needed to extend oil production cuts to prevent stock accumulation. In the second quarter of this year, before Sunday’s announcement there was a surplus of 560,000 bpd of liquids if OPEC+ rapidly unwound the cuts.

The latest EIA Short-term Energy Outlook (STEO) – which assumes that OPEC+ crude production would partially unwind the voluntary cuts – shows a marginal surplus of 140,000 bpd.

Although OPEC and the IEA's monthly oil market reports don't provide a forecast of OPEC crude production, we can infer the market balance by assuming Rystad Energy's OPEC+ crude production forecast. In this case, the IEA's inferred balance for the second quarter of this year shows a large surplus of 1.54 million bpd due to strong supply growth and limited demand growth next quarter. However, OPEC's inferred balance for the second quarter shows an almost perfectly balanced market.

OPEC+ countries have a choice to make.

If they prefer the IEA's estimates, extending the cuts into the second quarter will bring the market to equilibrium next quarter.

On the other hand, if they favor the EIA's or Rystad Energy's balances, the extension of voluntary cuts would move the balance from a surplus to a deficit.

However, if they rely more on OPEC's market views, there is likely no need to extend the voluntary cuts since the market would have been balanced anyway.

Therefore, if OPEC relies on its own market views, we must conclude that the group is highly determined to pursue a price-supportive strategy.