The OPEC+, composed of member countries of the Organization of the Petroleum Exporting Countries (OPEC) and non OPEC oil producing countries, recently announced an extension of its voluntary production reduction plan. However, it also stated that it will gradually withdraw some of its production reduction efforts after the end of September depending on market conditions. The complex signals conveyed by this plan have raised market concerns, and international oil prices have fallen in response. Due to multiple uncertainties, the outlook for oil prices in the second half of the year has become increasingly uncertain. According to the OPEC statement, eight OPEC and non OPEC oil producing countries have decided to continue voluntary production cuts in the third quarter of this year. Among them, the voluntary production reduction measure of 2.2 million barrels per day announced in November 2023 will be extended until the end of September this year, and will gradually withdraw according to market conditions thereafter; Extend the voluntary production reduction measure of 1.65 million barrels per day announced in April last year until the end of 2025. The production reduction plan of OPEC+this time is considered as "seemingly reducing but not reducing", and the market's interpretation is also mixed. On the one hand, the decision to continue reducing production meets market expectations and aims to further support oil prices; On the other hand, the supply of crude oil in the fourth quarter may increase with the withdrawal of production cuts, which still creates a certain negative factor for oil prices. Under the influence of the complex decision of OPEC+, international oil prices have significantly declined. As of the close on June 3rd, the price of light crude oil futures for July delivery on the New York Mercantile Exchange fell $2.77, closing at $74.22 per barrel, a decrease of 3.6%; The London Brent crude oil futures for August delivery fell $2.75 to close at $78.36 per barrel, a decrease of 3.39%. Given the complex situation of bullish and bearish factors still present in the international crude oil market, the trend of oil prices in the second half of the year may face significant variables. From a positive perspective, extending the production reduction plan increases the possibility of a decline in crude oil inventories, while summer is the peak season for refined oil consumption, and the oil market is about to usher in a seasonal increase in demand. In addition, the US Department of Energy announced on the 3rd that it will purchase another 3 million barrels of oil for its Strategic Petroleum Reserve (SPR), which may also boost oil prices. In this context, some analysts believe that there is some support for oil prices in the third quarter, and they may even maintain a high level of operation. At the same time, negative expectations on both supply and demand sides are also impacting the market. Under the expected impact of OPEC+gradually withdrawing additional production cuts starting from October, the market is concerned that the pattern of tight supply will be reversed. The recent signs of weak demand growth have also affected oil prices. Many people believe that the outlook for global oil demand growth this year is not as optimistic as OPEC expected, and with the seasonal weakening of refined oil consumption in the fourth quarter, the pressure on crude oil fundamentals to weaken may be greater. According to CNBC, traders are no longer willing to purchase crude oil futures contracts delivered later this year due to concerns about increased supply leading to a drop in oil prices. According to Reuters, given the high interest rates and rising production in non OPEC oil producing countries such as the United States, the latest OPEC+production reduction decision has made the outlook for oil prices even dimmer. Analysts at Mizuho Securities believe that unless geopolitical tensions escalate further, there is no longer a possibility of oil prices rising to $100 per barrel. Goldman Sachs predicts that Brent crude oil may fall below the price range of $75 to $90. However, OPEC+also stated that future actions will still depend on market conditions, and plans to gradually withdraw production cuts may also be reversed. This means that although there are signals of increasing supply, the timing for exiting the additional production reduction plan may not be ripe, and the actions of major oil producing countries will still depend on supply and demand data and an assessment of the oil price situation at the end of the summer. Analysts say that the fourth quarter of this year may become a turning point in the global crude oil market, and important factors supporting the fundamentals of oil prices in the past year may not be able to provide strong support for the oil market. In addition to dynamic factors in major oil producing countries, US inflation data and the timing of the Federal Reserve's interest rate cut will also affect the trend of oil prices. In addition, it is necessary to closely monitor global economic indicators and geopolitical developments. (Lai Xin She)
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