In crude markets, there is a new fear that OPEC+ leaning toward reviving oil production as planned in October might lead to over supply over all ready weak demand conditions as seen in low global manufacturing PMIs, especially Chinese data. Even with global OECD crude inventories lower than 10yr average by 4%, brent prices keep on falling to the lower range of 75-85. Global slowdown in manufacturing PMIs specially China, impending OPEC+ increase in output by 188kbpd from Oct’24 as well as trader’s positioning (major gamma hedgers are concentrated around 70 levels on brent & 65 levels on WTI) gives us confidence that Brent is headed towards sub 70 levels by end CY24. This might get compounded if US recession fears increase or if Chinese data further weakens. We believe OPEC+ cartel is now aiming at strategically disciplining non-OPEC supply after having lost a significant market share to US shale during the last 2 years & hence might allow prices to fall so that low margin US shale fields with break evens around 60 levels might find production non viable at such levels & get weeded out.
