On Thursday, Stifel analysts acknowledged an article from Reuters that said OPEC+ may be gearing up to boost oil production, despite the possibility of driving prices lower in the short term.
The firm noted that the production increase, set for December 1, would mark a shift from the group’s recent delays in raising output for October and November.
Saudi Arabia, leading the group, appears ready to sacrifice prices to regain market share, although it’s not expected to launch an all-out price war, said Stifel.
They highlighted that Saudi production had decreased significantly from its peak of 11.0 million barrels per day (mbpd) in 2022 to around 9.0 mbpd in July 2024, under 10% of global supply.
Total OPEC+ production currently stands at 41.7 mbpd. The potential increase in output would weigh heavily on oil prices and oilfield service stocks, according to the firm.
They note that in the U.S., production has also risen, up by 1.1 mbpd from 2023 levels.
In terms of market impact, Stifel suggests that tanker stocks, including International Seaways (NYSE:), Scorpio Tankers (NYSE:), Ardmore Shipping (NYSE:), and DHT Holdings (NYSE:), could benefit from increased production.
However, they believe oil service stocks may face headwinds. Stifel recommends sticking with high-quality names such as Baker Hughes, Liberty Energy, and Cactus (NYSE:) in this environment.
China, the world’s largest importer of oil, is said to remain a wildcard.
“While hard to gauge, it appears that officials are working on stimulus to meet the 5% economic growth target in 2025,” wrote Stifel. “Oil demand in China sits at about 16.8 mbpd, barely up from 2023 following 2 mbpd of growth in 2023 versus 2022. Recall demand in China has been a major driver of global oil demand growth over the past decade, and remains a critical variable in global oil consumption.”
Meanwhile, the firm says midstream companies are expected to fare better in the event of weaker prices, with diversified names like Enterprise Products Partners (NYSE:), Energy Transfer (NYSE:), and MPLX (NYSE:) better positioned to weather the volatility.
Analysis:
Stifel analysts have indicated that OPEC+ may increase oil production, potentially impacting oil prices and related stocks. This move could benefit tanker stocks but pose challenges for oil service companies. China’s oil demand and economic growth target also play a significant role in the global oil market. Midstream companies with diversified portfolios are seen as better positioned to handle price volatility. Investors should consider these factors when making decisions about their investments in the oil sector.