Saudi Arabia is sensitive to the “weak level” of global demand, according to Ed Morse, global head of commodities research at Citi.
“It is clear that the Saudis are sensitive to the weak level of demand in the world, especially from China, where, contrary to expectations, growth in the services sector has stagnated, as it has in the goods sector, and the real estate sector is watching. even more significant problems in the loan books than expected, all of which keep demand growth lower than expected,” Morse told Rigzone.
“Another factor in market weakness appears to be oversupply, not only from the United States, but from the ‘Fragile Five’ OPEC countries, which together produced 10.56 million barrels per day in June 2023, compared to 9.7 million barrels per day in June 2022,” Morse added.
The head of Citi told Rigzone that given the lack of concrete price response to the original cut of one million barrels per day, the Saudis announced for July, “as expected, they extended their cuts by a but more”.
“While Russia had announced a production cut in March, exports peaked in May,” Morse added.
“But Russian refiners are expected to carry out refinery maintenance between August and November and this, combined with the expected end of product subsidies, could allow them to increase profits from sales of domestic products,” he continued.
“At the same time, another Russian motivation could be to see if lower exports could lead to a reduction in the discounts that Russian crude is receiving compared to other crude streams such as Brent,” Morse said.
Demand, production
According to the US Energy Information Administration’s (EIA) latest Short-Term Energy Outlook (STEO), which was released in June, total oil and other liquids consumption was 99.93 million barrels per day in the first quarter of the year. This figure is predicted in the STEO to be 100.81 million barrels per day in the second quarter, 101.60 million barrels per day in the third quarter and 101.69 million barrels per day in the fourth quarter.
Total oil and other liquids production was 101.06 million barrels per day in the first quarter, the STEO showed. STEO expects that figure to be 101.33 million barrels per day in the second quarter, 101.40 million barrels per day in the third quarter and 101.69 million barrels per day in the fourth quarter.
US production of oil and other liquids was 21.02 million barrels per day in the first quarter, according to the STEO, which forecast the country’s output to stand at 21.26 million barrels per day in the second quarter, 21.34 million barrels per day in the third quarter. , 21.41 million barrels per day in the fourth quarter, and 21.26 million barrels per day throughout 2023. US production was 20.21 million barrels per day in 2022, STEO noted.
OPEC’s total oil and other liquids output was 33.95 million barrels per day in the first quarter of the year, according to the STEO. STEO predicts that number will be 33.73 million barrels per day in the second quarter, 33.17 million barrels per day in the third quarter, 33.21 million barrels per day in the fourth quarter and 33.51 million barrels per day in 2023 in total. Total OPEC production was 34.17 million barrels per day in 2022, the STEO showed.
The only option was to expand
Joseph Gatdula, the head of oil and gas at BMI, a Fitch Solutions company, told Rigzone last week that “Saudi Arabia’s only option was to extend the voluntary cuts until August given the weakness in oil prices seen since they were first announced in early June”.
“A reduction or rollback of the cuts would have been premature and would likely have had a strong downward impact on prices as bearish sentiment dominates price action,” Gatdula added.
The IMF official also stressed that Russia’s continuation of a 500,000 bpd cut is likely to do little to affect physical trade, “as our estimates have less than half of the cuts promised until now.”
In an oil trade alert sent to Rigzone on the morning of July 4Rystad Energy Senior Vice President Jorge Leon and Rystad Senior Analyst Patricio Valdivieso noted that markets reacted immediately to the announcement of Saudi Arabia’s production cut extension.
“Rystad Energy believes this move reinforces our thesis that this mechanism of a possible monthly extension of the Saudi cuts limits downward pressure on prices for the rest of the year, regardless of the macroeconomic environment,” they said. say the analysts in the alert.
To contact the author, please send an email andreas.exarcheas@rigzone.com
