OPEC+ has plenty of dry powder for more cuts if needed.
That’s what Bjarne Schieldrop, chief commodity analyst at Skandinaviska Enskilda Banken AB (SEB), said in a statement sent to Rigzone, adding that the group “has made it clear” that $70 a barrel is the minimum price of oil
“OPEC+ has just started cutting, with a reduction of 1.5 million barrels per day starting in May,” Schieldrop said in the statement.
“But this only brings Saudi oil production roughly back to its normal level of around 10 million barrels per day after an unusually high output of 11 million barrels per day in September 2022,” he add.
The SEB analyst noted in the statement that OPEC+ will now spend the month of May assessing the effects of the latest cuts and said that the Joint Ministerial Monitoring Commission (JMMC) will meet on June 4 and make a recommendation to the group.
“If at that time it becomes clear that more cuts are needed, it is likely that we will have a verbal intervention in June in the run-up to the OPEC+ meeting [on] July 5-6, and then fresh cuts, if necessary,” Schieldrop said in the statement.
The 48th meeting of the JMMC, which took place via video conference on April 3, noted a voluntary production adjustment announced on April 2 by Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, Oman and Gabon from May until the end of 2023. , highlighted a statement published on the OPEC website after the 48th meeting.
The OPEC site revealed last month that the 49th JMMC Meeting is scheduled for June 4. A statement posted on the OPEC site after the previous non-OPEC ministerial meeting, which took place on December 4, revealed that the next OPEC-non-OPEC ministerial meeting would have place on June 4. At the time of writing, neither the 49th JMMC meeting nor the upcoming OPEC+ meeting is listed in the Upcoming Events section of the OPEC site. The only event listed is the 8th OPEC International Seminar, which is currently scheduled to take place on July 5-6.
Production cuts are effective
OPEC+ production cuts have proven effective time and time again, Schieldrop said in the statement.
“The deep cuts announced by OPEC in December 2008 sent the price of oil bottoming out at $33.8 a barrel on Christmas Eve. A massive cut in production of 9.7 million barrels a day in May 2020 sent oil prices soaring after the April 2020 low,” the analyst added.
“The usual historical pattern is first a drop in prices, then cuts, then a rebound. This creates an anticipation by the market of a similar pattern this time: that the price of oil will first climb to $40 a barrel, then deep cuts by OPEC+ and then the rebound,” he continued.
In the statement, Schieldrop noted that OPEC+ is faster and much more vigilant today.
“Faster markets and faster action from OPEC+ means we could still have a deep bottom in prices, but it won’t last long,” he said.
“Oil inventories previously had time to build significantly when OPEC was slow to act. When OPEC cut back, it would take time to reverse the build-up in inventories, keeping prices lower for longer” , he said.
“The swift action by OPEC+ today means that inventories won’t have time to build up to the same degree if everything goes wrong with the economy, leading to shorter sales and sharper and faster rebounds,” Schieldrop added.
Oil price
The price of Brent crude oil closed at $72.97 a barrel on March 17, before rising to a close of $87.33 a barrel on April 12 and falling to a close of $72.33 on barrel on May 3. per barrel
On May 9, 2022, the Brent price closed at $105.94 a barrel.
To contact the author, please send an email andreas.exarcheas@rigzone.com
