OPEC+ announced on Sunday planned production reductions from some of its member states, most notably Saudi Arabia agreeing to make a one million barrel per day (bpd) voluntary cut starting in July.
UBS analysts, in a note to clients, wrote they believe the impacts of the decisions were “positive for (the) crude oil direction,” while expecting the biggest beneficiaries to be exploration, development and production (E&P) firms and international oil companies (IOCs).
With the new quotas in place through 2024, they noted that the global oil market could now be undersupplied by 2.3 million bpd by the second half of 2023 versus their current outlook of a 0.2 million bpd surplus.
The analysts also reiterated their 2024 estimates of $85 and $81 for Brent and West Texas Intermediate (WTI) crude oil prices, respectively.
“Our sense from the update is that OPEC + wanted to get ahead of any potential weakness and Saudi is willing to give up volumes to balance the market and support price,” they said.
Analysts at UBS added that EOG Resources Inc (NYSE:EOG) is their top E&P pick, while Chevron Corporation (NYSE:CVX) is their top integrated oil pick.
As well, they see the OPEC+ news as being supportive for oil E&Ps that have recently done acquisitions with cash, as the higher prices will support faster deleveraging while returning cash to shareholders.
Those names include ConocoPhillips (NYSE:COP), Ovintiv Inc, and Marathon Oil Corp.
Contact Sean at sean@proactiveinvestors.com