Struyven: OPEC Production Cuts Always Seemed Temporary

Bloomberg

10-07-2025

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00:00You were inside the seminar yesterday and I guess you had lots of conversations with people about the long term dynamics within also short term. Did you walk away with a better understanding of why Opec+ have accelerated the put back of all of these barrels to the market? Yes. So this conference is very insightful because quite unique concentration of policymakers, executives, analysts, journalists like yourself getting together and exchanging thoughts on this fascinating market. In my view, OPEC's voluntary production cuts were always meant to be temporary, opaque, always signaled that it had the flexibility to bring barrels back to the market when it would judged that there is room. And so far in history in the summer, the market reaction suggests that there has been room for being barrels back to the market more broadly. I would contextualize the decision to raise production in a broader context where OPEC is aiming to normalize market share, normalized spare capacity, and also to further improve cohesion with the group. And we have seen improvements in compliance with the production cuts as well. Yeah. So do you think that they are set to unwind, completely, fully unwind the voluntary cuts with the last quip in August that sort of brings all of that 2.2 million barrels per day, 1% to an end. Yes, that's our expectation that you get another 0.55 million barrels per day increase, at least in the quarter at four for next next month. And then you would have fully reversed the 2.2 million barrels. Okay. But there's also another 1.66 million barrels per day voluntary cuts. Do you think attention then shifts to that or are they going to bide their time and wait and see what happens? I think attention will shift to that to the next round or base case remains that they will be done raising production once the $2.2 million today, sort of second quarter funding round of cuts is unwound. But it will depend on the balance. It will depend on the inventory levels. And we forecast a surplus for both this year and next. And that's why, you know, we think the we will soon be done raising production, but it will ultimately depend on the data. How big of a surplus do you see? Because that seems to be also the swing factor in terms of decision making. And I've seen so many different estimates about how demand is going to pan out by the end of this year. Some people have it at 500,000 barrels a day. You speak to the likes of Aramco, KPC, they're talking about 1.2, 1.3 million barrels a day. Where do you see it? Yes, I think there is a lot of agreement here that Western oil markets are quite tight with low inventory levels in the US, very low diesel energy levels. That's why diesel margins have spiked. But there is a lot of debate about next year and about demand. We actually think that the market so far this year has has been in a surplus. We have seen builds of around 1 million barrels per day. That's essentially also our forecast for the surplus. This for this year, for next year with one and a half million barrels per day. What's really fascinating is that the builds have been concentrated outside of the West from pricing centers with very low inventories, for instance, in the US in Cushing, but increases in inventories on water and also in Asia, for instance, in China. So the big question is if we are right and that you're going to stay in a surplus where supply exceeds demand, are you going to see a more equally spread price even? That's a base case and that's why we look for for moderate declines in oil prices. But if the inventory levels remain very low in the West, you could see a bullish scenario where prices stay around current levels at firmer levels than our base. Do you see any upside surprises coming through on the demand side? Because again, if you look at the macro taking a step back, I would say more recently you're getting better activity indicators coming through from the US and perhaps other sides of the world as well. Other parts of the world. Yes. So our base case has demand growing This year by 600 came in. We have flagged some some upside risk to that estimate. We're seeing some beats in China where now gas for demand is up for an activity on a year over year basis. European demand also seems to be coming in a little bit stronger. And then in the Middle East with a very hot summer, AC demand is also also very strong. So moderate upside risk due to demand. That said, I find it hard to imagine demand growing by more than, say, 1.2, 1.3 million barrels per day, an environment where China demand is just structurally, you know, not growing at the very spectacular base. It used to be part of it. Yeah. Let me ask you about the geopolitical premium that was briefly priced in. So the oil curve around the 12 day war. Have people just forgotten about that now? I mean, do you get a sense that perhaps people may want to still hedge for the possibility of things flaring up again, or has the episode just come and gone and the market has moved on? Yeah. Did you ever think of Extreme has come down pretty quickly? We think it's worth groaning. Maybe three, three or four, $4. I don't think it's completely off people's radar screen. We had some attacks by duties in the in the Red Sea. We had some of the headlines about Iran's nuclear nuclear program last week. So I think it's still top of mind, but of course, much less so than a few weeks ago. And I think the reason why this risk premium as it has evaporated so, so quickly is that we have seen several major geopolitical shocks in the last few years. We actually know. Full supply. Supply? Physical impact. Look, while I have you with us, I really do want to ask you also about the copper tariffs that the Trump administration has announced this week, Obviously being a big driver for market action, specifically in copper as well. How do you see things panning out from here onwards? And what is the outlook for for copper markets that you follow? Yeah, So President Trump has announced a 50% tariff on US copper imports affected from from August. We have been recommending to our clients to go along. US copper prices versus international copper prices. If you look at that price differential, it's now pricing in a roughly 30% tariff or base case is 50%. We really do think that the Trump administration is very focused on boosting supply of copper, which is a very important, critical mineral also for the defense industry. The second most widely used metal from the by the Defense Department. And so we think that that pricing, that 30% tariff pricing has room room to increase. What if there's an exemption, say, for Chile or one of the other large trade partners of the US? That's a great question and that's why we think sort of the market perhaps should be pricing a 40% tariff also because there is some room for exemptions. Yeah. At the same time, the steel and alley tariffs are also at 50%. And copper is a very critical mineral. And more broadly, I think the US wants to become dominant in most commodities. It's already energy dominance, but very reliant on the rest of the world for metals. Metals are becoming more and more critical for the economy, for the defense sector, for the for the industrial sector. And so we really do think that President Trump is very focused on boosting production of copper in the U.S..