Is OPEC+ About to Boost Production?

On Thursday, Stifel analysts acknowledged a report indicating that OPEC+ might be preparing to increase oil production, even though this could lead to lower prices in the short term.

The analysts pointed out that the planned production hike, set for December 1, represents a departure from the group’s recent decisions to delay output increases for October and November.

Saudi Arabia, which leads the group, seems willing to forgo higher prices to regain market share; however, an all-out price war is not anticipated, according to Stifel’s assessment.

They noted a significant decline in Saudi production, which fell from a peak of 11.0 million barrels per day (mbpd) in 2022 to approximately 9.0 mbpd in July 2024, constituting less than 10% of global supply.

Currently, OPEC+ production totals 41.7 mbpd. The anticipated output increase could exert downward pressure on oil prices and impact oilfield service stocks.

In the U.S., production has also risen, with an increase of 1.1 mbpd compared to 2023 levels.

Regarding market implications, Stifel suggested that tanker stocks, such as those from various listed companies, could see benefits from this rise in production. However, they indicated that oil service stocks may encounter challenges and recommended focusing on high-quality companies such as Baker Hughes, Liberty Energy, and Cactus in this environment.

China, as the world’s largest oil importer, remains an unpredictable factor. Stifel observed that the Chinese government appears to be working on stimulus measures to achieve a 5% economic growth target for 2025. Oil demand in China is approximately 16.8 mbpd, showing minimal growth from 2023 after a 2 mbpd increase in 2023 compared to 2022. The report reiterated that China’s oil demand has been a significant driver of global growth over the past decade and remains a key element in overall oil consumption.

Meanwhile, midstream companies are expected to perform better in the face of declining prices, with diverse companies better positioned to navigate market volatility.