Over the last month, oil market analysts have closely followed macroeconomic indicators

especially interest rate expectations. Typically, oil demand and prices are driven by economic

growth. However, it’s also insightful to view oil demand as an indicator of economic health

especially given the frequent macro data revisions in the US. Currently, we see crude oil draws, but

stockpiling in distillates and gasoline, suggesting that economic activity, especially in the US, is

slowing down. This slowdown means that the Fed’s interest rate policies could potentially prolong

high rates, risking a recession.

What’s the long-term outlook for OPEC+ cuts?

The key to whether these cuts can be extended or maintained long-term lies with the UAE and

Russia. Russia has much to gain from taking cuts more seriously, but its track record is less

convincing compared to the UAE. The UAE, while eager to utilize more of its capacity, has always

been a reliable team player within OPEC+, adhering to agreements. Additionally, countries like

Kazakhstan, which benefit from others’ cuts but are not major contributors themselves, add to the

complexity of this challenging dynamic.

Should OPEC+ assume that the Fed easing cycle won’t begin before 2025?

The market is still anticipating a rate cut in September. However, this might not lead to a sudden

surge in economic growth. It’s possible that the peak of economic growth in the US has already

passed, with stabilization occurring in China. The optimistic demand forecasts by OPEC+, were

probably calculated thinking that demand would be further boosted by Fed rate cuts. However

this projection might not materialize if economic growth has already peaked.

What is Saudi’s short-term tolerance for a lower oil price?

Looking at Saudi’s financial history, they have no problem running deficits for prolonged periods.

They are aware of their substantial oil reserves and have the flexibility to announce and scale

down megaprojects if necessary. So, their internal budgetary policies are quite stable. Their oil

policy is also driven by long-term considerations, and particularly managing the potential peak oil

scenario, where the competition would be to produce oil at the lowest cost to retain market share.

The Gulf countries are likely to be the ultimate winners in this contest.