Investing.com -- In a recent article from Multibagger, Stifel analysts have acknowledged that OPEC+ is gearing up to increase oil production, potentially driving prices lower in the short term.
The production increase, scheduled for December 1, marks a departure from the group's recent output delays in October and November. Saudi Arabia, leading OPEC+, is willing to sacrifice prices to regain market share without initiating a full-blown price war.
Stifel highlighted that Saudi production has decreased significantly from its peak of 11.0 million barrels per day in 2022 to around 9.0 mbpd in July 2024, accounting for less than 10% of global supply. Currently, total OPEC+ production stands at 41.7 mbpd.
The potential output increase is expected to exert downward pressure on oil prices and oilfield service stocks, according to Stifel. They also noted a rise in U.S. production by 1.1 mbpd compared to 2023 levels.
Stifel suggests that tanker stocks like International Seaways, Scorpio Tankers, Ardmore Shipping, and DHT Holdings could benefit from the increased production. However, they anticipate headwinds for oil service stocks and recommend sticking with high-quality names such as Baker Hughes, Liberty Energy, and Cactus.
China, as the world's largest importer of oil, remains a wildcard in this scenario. Stifel mentioned that Chinese officials are working on stimulus to achieve a 5% economic growth target in 2025. Oil demand in China is currently at 16.8 mbpd, with minimal growth compared to 2023.
Midstream companies like Enterprise Products Partners, Energy Transfer, and MPLX are expected to perform better in the face of weaker prices, as they are more diversified and better positioned to withstand volatility.
Analysis:
In summary, OPEC+ is planning to increase oil production, which could lead to lower oil prices in the short term. This may benefit tanker stocks but could pose challenges for oil service stocks. Investors are advised to consider high-quality names in the oil service sector and focus on midstream companies for greater resilience in the current market environment. China's role as a major oil importer remains uncertain, with officials working on stimulus measures to boost economic growth. Overall, the impact of OPEC+ decisions on oil production can have significant implications for global oil markets and various sectors within the energy industry.