The Prospects of OPEC+ Extending Production Cuts into 2025

Oil futures experienced a decline on Thursday due to unexpected builds in gasoline and diesel inventories, dampening the impact of a substantial draw in U.S. crude stocks. This scenario has added to concerns regarding fuel demand as the summer driving season commences.

The Energy Information Administration revealed that U.S. crude inventories had decreased by a significant 4.2M barrels in the week ending May 24. However, gasoline stocks surged by 2M barrels, while gasoline demand witnessed a decline from 9.3M bbl/day to 9.1M bbl/day in the preceding week.

John Kilduff of Again Capital anticipated a draw in gasoline stocks leading up to the holiday weekend. However, with refineries operating at full capacity, it became challenging to deplete product inventories, contributing to the unexpected rise in stocks.

StoneX analysts highlighted the continued weakness in gasoline markets, affecting the broader oil complex. The outlook for demand remains uncertain for the summer, influenced by factors such as elevated interest rates and the potential for an economic slowdown.

Front-month June Nymex RBOB gasoline futures closed at a three-month low of $2.4046/gal, marking a decline of -2.4%. Additionally, ultra-low sulfur diesel futures hit their lowest point in nearly a year.

Similarly, front-month Nymex crude for July delivery ended with a loss of -1.7% at $77.91/bbl, marking the sixth decline in the last eight sessions. Front-month July Brent closed -2.1% lower at $81.86/bbl.

Volatility in the market is expected to persist leading up to the weekend, with focus on Sunday’s OPEC+ meeting. The cartel will convene to decide on the extension of output cuts beyond the second quarter.

OPEC+ is reportedly working on a multifaceted deal that would allow for the extension of some of the significant production cuts into the year 2025. Currently, the group is enforcing a reduction of 5.8M bbl/day, which includes 3.66M bbl/day by OPEC+ members valid until the end of this year, and additional voluntary cuts of 2.2M bbl/day by certain members scheduled to expire by the end of June.

As per reports, the proposed new agreement might involve extending either some or all of the 3.66M bbl/day cuts into 2025 and potentially continuing some or all of the voluntary 2.2M bbl/day cuts until the third or fourth quarter of 2024.