More production cuts are still on the table when OPEC+ ministers meet in Vienna this Sunday, Rystad Energy Senior Vice President Jorge Leon said in a statement sent to Rigzone.
“Macroeconomic headwinds are putting significant downward pressure on oil markets in recent weeks, despite voluntary cuts implemented by seven OPEC+ countries starting in May, and the producer group could cut output to support prices in the short term,” Leon said in the statement. .
“The lack of response from US shale should be seen as a positive for the group, as OPEC+ could cut production and support prices without the risk of losing market share,” he added.
“However, the impact of rising oil prices on the global economy will weigh heavily on the minds of ministers,” Leon continued.
High oil prices would fuel inflation in the West just as central banks are starting to see inflation gradually ease, Rystad’s SVP noted, adding that this could prompt central banks to continue raising interest rates. interest, which he called “a damaging move for the world economy”. and the demand for oil”.
“Given all these caveats, the group may decide to maintain production,” Leon said in the statement.
“The oil market is expected to tighten significantly in the second half of the year, even if OPEC+ maintains production, prices will likely experience significant upward pressure,” he added.
“Ministers could therefore take a ‘wait and see’ approach and hold off on any action,” Leon continued.
In the statement, León noted that demand forecasts “remain tepid at best” and said that “maintaining current production may be the most prudent path.”
“Rystad Energy’s real-time global traffic monitoring tool shows that activity has remained stable over the past six weeks compared to 2019,” Leon said.
“Aviation demand paints a gloomier picture as mobility rates are flat compared to 2019 and stubbornly below 2019 levels since February,” he added.
Another option is for OPEC+ to increase production, Leon emphasized in the statement. He added, however, that Rystad doesn’t think that’s a likely outcome.
“This move undermines the group’s cohesion, especially Russia, which would fiercely oppose an increase,” he said.
“Furthermore, the IMF estimates that the oil price for Saudi Arabia in 2023, the head of the group, is $81 a barrel,” he added.
“The average oil price this year is $77 per barrel, and opening the taps would further reduce the average price in 2023. Also, spare capacity in non-core OPEC+ countries is relatively limited,” he said. said Leon.
Weak prices, worsening macroeconomic sentiment
In a separate report sent to Rigzone this week, Standard Chartered analysts noted that OPEC+ ministers will meet on June 4 against a backdrop of relatively weak prices and worsening macroeconomic sentiment among oil traders.
“Brent is set to average just over $76 a barrel in May, the lowest monthly average since December 2021 and more than $7 a barrel below April,” analysts said in the report
“Expectations of a protracted rate hike cycle in key OECD economies have increased bearishness on oil among macro-focused investors; while speculative shorts pulled back a bit in the last week, the our Crude Oil Money Manager Positioning Index remains very bearish at -89.1,” they added.
Analysts said in the report that the patient approach of OPEC+ ministers would be to maintain current targets in anticipation of higher prices as the market tightens.
“OPEC crude production has fallen by about 1.9 million barrels per day since September 2022, and we estimate that this was about the same as the OPEC production and inventories call in May,” the analysts
“We expect OPEC call to increase in the second half, leading to significant inventory additions over the next seven months if OPEC production remains flat,” they added.
“The forecasts of the International Energy Agency and the OPEC Secretariat for the second half of the OPEC call are, respectively, 0.92 million barrels per day and 0.56 million barrels per day higher than our estimate, implying even larger inventory extras,” they continued.
The prudent approach would be to respond to the concerns of macro-led shorts and make a further pre-emptive cut to signal to speculators that any potential macroeconomic downside has already been covered, Standard Chartered analysts said in the report.
“We think that the decision is well balanced; While we do not detect a strong appetite among ministers for further cuts, we also do not detect any appetite to allow macro-led investors to open lower oil prices,” the analysts noted.
OPEC+ programming
Although OPEC’s website currently does not show any events scheduled for June 4, a statement posted on the organization’s site in December last year revealed that at its previous ministerial meeting of the OPEC and non-OPEC held on December 4, 2022, OPEC+ decided to hold its next OPEC and non-OPEC ministerial meeting on June 4. A statement posted on the OPEC website in April noted that the next meeting of the Joint Ministerial Monitoring Committee is scheduled for June 4.
The next scheduled meeting listed on the OPEC site is the 8th OPEC International Seminar, currently scheduled for July 5-6 in Vienna.
A statement published on the OPEC website earlier this week noted that during the recent meeting of the OPEC Economic Commission Board, OPEC Secretary General Haitham Al Ghais “was underline the positive contributions made by OPEC member countries and non-OPEC oil producing countries participating in the Declaration of Cooperation to support sustainable stability in the global oil market”.
The ECB describes itself as OPEC’s economic and technical think tank, which meets twice a year before the bi-annual regular meetings of the OPEC Conference. The ECB regularly reviews market conditions and the evolution of the world economy, according to the OPEC statement.
To contact the author, please send an email andreas.exarcheas@rigzone.com
