Saudi Arabia’s only option was to extend the voluntary cuts until August given the weakness in oil prices since they were first announced in early June.
That’s what Joseph Gatdula, head of oil and gas at BMI, a Fitch Solutions company, told Rigzone, adding that a reduction or rollback of the cuts would have been premature and likely had a strong downside impact in prices “as bearish sentiment dominates price action.”
“Bearish sentiment is preventing prices from moving higher despite the broad consensus for tighter markets in the coming months,” Gatdula said.
The IMC oil and gas chief also stressed that Russia’s continuation of a 500,000 bpd cut is unlikely to affect physical trade, “as our estimates have less than half of the promised cuts Bye now”.
“Our view is that Russia will not meet these cutback targets, but will instead focus on maximizing production and exports to maintain state revenues and preserve recent gains in Asian market share,” Gatdula said.
“This is likely to raise tensions behind the scenes between key OPEC members, although the outward stance will remain as a united OPEC+ response to market conditions,” he added.
“If tensions become more public, it could strain the relationship between Russia and Saudi Arabia, adding uncertainty to the supply outlook and prices,” Gatdula warned.
In an oil market alert sent to Rigzone on Tuesday, Rystad Senior Vice President Jorge Leon and Senior Analyst Patricio Valdivieso noted that Rystad believes the extension of Saudi Arabia’s cut reinforces the thesis of the company that “this mechanism of a possible monthly extension of the Saudi cuts limits downward pressure on prices”. during the rest of the year, regardless of the macroeconomic environment”.
As for a possible extension of the Saudi cut beyond August, Rystad analysts noted in the alert that “this will depend on several factors, including the macroeconomic environment, price developments and recovery of the demand”.
In their alert, Rystad analysts also singled out future Russian compliance with its own voluntary cuts as an “indicator” and said their analysis showed there was “yet no basis for Russia not complying with their voluntary production cuts of 500,000 barrels each.” day, despite the high export flows by sea from Russia”.
Brent closed at $74.28 a barrel on June 1, before rising to a close of $76.95 a barrel on June 7, before falling to its lowest close of the year so far , on June 12 at $71.84 per barrel. Since then, Brent returned to a close of $77.12 a barrel on June 21, fell to a close of $72.26 a barrel on June 27, and rose to a close of 74.9 dollars per barrel on June 30.
The commodity closed at $74.65 a barrel on July 3. At the time of writing, Brent was trading at $76.02 per barrel.
Impact of OPEC+
In a report sent to Rigzone last month, BMI analysts noted that OPEC+ action has been key to curbing global supplies, but added that its impact “has been tempered by resilience and the increase in export flows from Iran, Russia and, to a much lesser degree, Venezuela, all of which are under various US sanctions”.
“Iran is producing and exporting at its highest levels since 2018, when former US President Donald Trump reimposed nuclear sanctions on Tehran,” the analysts said in the report.
“Meanwhile, limited sanctions relief for Caracas has helped boost Venezuelan exports this year… [and] Despite extensive sanctions, Russian exports have held up much better than expected since the invasion of Ukraine,” the analysts added.
“The deployment of large fleets of shadow tankers and strong buying interest in Asia, particularly India, have meant that marine crude flows remain relatively stable in 2022-2023, despite that pipeline flows to Europe were knocked down under the EU import ban,” the analysts continued. .
In the report, IMC analysts said data on export levels and domestic refineries point to some declines in production in recent months, but added that “these are well below the cut of 500,000 barrels per day announced by Moscow in February”.
“Furthermore, they coincided with Russia’s spring maintenance season, and by mid-June domestic refinery operating rates were already rising again,” the analysts said.
To contact the author, please send an email andreas.exarcheas@rigzone.com
