Macquarie Bank Ltd. remains bullish on oil prices over the short-term although structurally bearish on the market after the weekend OPEC+ meeting.

On June 4, OPEC decided to keep production at reduced levels and Saudi Arabia volunteered to cut oil production by 1 MMbbl/d in July.

OPEC’s actions should tighten direct crude balances through third-quarter 2023, Macquarie’s global strategists Vikas Dwivedi, Emily Leivy and Walt Chancellor wrote in a June 6 research report.

From there, they foresee a correction in fourth-quarter 2023 and into 2024 due to growth in sweet oil production in the U.S. and North Sea, as well as through OPEC+ non-compliance and slowing demand due to recessionary effects.

“The structural challenge for the oil market is the ease of oil production growth, a feature we believe will persist for several years,” according to the strategists.

For Macquarie, the recent OPEC+ meetings yielded three key points including voluntary production cuts that commenced in May 2023, which have been extended through year-end 2023. Saudi Arabia left open the possibility of maintaining its 1 MMbbl/d production cut past July. And the updated 2024 baseline production levels also offer further clarity for the market.

Macquarie said a voluntary cut by Saudi Arabia has the potential to shrink sour discounts and further compress U.S. refinery margins.

The three Houston-based strategists said macro concerns associated with the impact of recessionary pressures on demand are potentially limiting the ability for OPEC+ intervention to support price.

“Demand is a key part of the balance that has the most uncertainty, with the market focusing on Chinese demand growth. Currently, the IEA [International Energy Agency] is attributing around 60% of 2023 global demand growth to China; in contrast we estimate China will contribute approximately 35%,” they said.