OPEC+ Production Cut Extension Beneficial for Oil Prices, According to Wells Fargo

Wells Fargo analysts have reported that OPEC+’s recent decision to extend production cuts until the end of 2024 is a promising development for oil prices. This move, which comes in response to falling crude prices, showcases OPEC+’s ongoing commitment to maintaining a tight global supply and supporting elevated oil prices.

Originally, OPEC+ intended to gradually reduce its cuts by 2.2 million barrels per day, amounting to roughly 2% of the global supply, beginning in October 2024 and continuing into September 2025. However, due to recent weakness in the global economy and the resulting decline in oil prices, the group has opted to postpone these planned reductions.

Wells Fargo notes that this delay in changing production policies will help balance the effects of sluggish demand, emphasizing that the extension of the cuts is a stabilizing factor for oil prices. The bank remains optimistic about the short-term outlook, suggesting that this move should help counteract recent global demand challenges.

The analysts maintain their price forecasts for 2024, setting targets at $80 to $90 per barrel for West Texas Intermediate crude and $85 to $95 per barrel for Brent crude, with the possibility of a $5 increase by the end of 2025 as the macroeconomic situation improves.

Looking ahead, Wells Fargo is carefully observing the global supply landscape, particularly for 2025. Despite the sustained production cuts by OPEC+ over the past two years to bolster prices, the analysts express some uncertainty about the longevity of this support, although they do not predict any major changes to OPEC+’s strategy in the immediate future.

Overall, Wells Fargo believes that OPEC+’s decision to extend production cuts is likely to bring stability to the oil market and support prices throughout 2024.