HSBC’s forecast that Brent Crude prices would remain around $65 per barrel later this year could be too optimistic as OPEC+ continues to raise production, which will result in a bigger-than-expected surplus after the summer ends.
“Our new scenario assumes regular hikes from October to December and leaves the 2.2mbd of voluntary cuts fully unwound by the end of 2025,” the bank said in a note on Friday carried by Reuters.
OPEC+ producers have just said they would boost July production by another 411,000 barrels per day (bpd), citing “current healthy oil market fundamentals and steady global economic outlook.”
According to HSBC, the producer group will announce two large hikes after July. OPEC+ could raise output by another 411,000 bpd in August and 274,000 bpd in September, which would mean that the alliance would bundle five of the previous monthly increases of 138,000 bpd into two months.
Currently, the market is fairly balanced, and peak summer demand will support the large OPEC+ increases already announced for June and July. But the hikes after the third quarter – when peak demand season would have ended – will raise the surplus on the market to higher than previously expected levels, HSBC said.
“Deteriorating fundamentals after summer raise downside risks to oil prices and our $65/b assumption from 4Q onwards,” the UK bank’s analysts wrote.
Banks have divergent opinions about whether OPEC+ will proceed with easing the cuts.
Goldman Sachs, for example, expects OPEC+ to make its final production hike in August at the now-standard level of 411,000 barrels daily.
ING’s commodities strategists Warren Patterson and Ewa Manthey expect the producer group to continue with the large increases.
“This would mean that the full 2.2m b/d of supply will be brought back by the end of the third quarter of this year, 12 months ahead of schedule,” they said.
“This is the key assumption behind our price forecast for ICE Brent to average US$59/bbl in the fourth quarter.”
By Charles Kennedy for Oilprice.com
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