OPEC+ is in a good position to keep oil around $85 a barrel, according to a new report from Skandinaviska Enskilda Banken AB (SEB), which was sent to Rigzone earlier this week.
“We expect OPEC+ to have a firm grip on the global oil market over the next two years as US shale oil production slows to a trickle,” SEB analysts Bjarne Schieldrop noted , the company’s chief commodity analyst, and Ole R. Hvalbye, in the report.
“An oil price of $85-90 per barrel should be a good break-even point for consumers and producers,” the analysts added.
In the report, analysts said OECD commercial oil inventories have increased by 111 million barrels over the past year, but added that US strategic oil reserves over the same period have declined “by almost the same amount: 95 million barrels.”
“Therefore, the global oil market has almost balanced over the past year with no real increase in OECD inventories when the fall in US SPR is considered,” the analysts said in the report .
Analysts also noted in the report that Saudi Arabia produced 10.5 million barrels per day in April “but then quickly cut that to just 9.0 million barrels per day from July to September.” .
“This did wonders for oil prices, which have soared to $85 a barrel,” the analysts said in the report.
“This [is] exactly where we think Saudi Arabia wants to keep it if it can. It provides sufficient income, while not being so high as to provoke too many political bribes from its clients,” they added.
“Saudi Arabia’s current deep cuts, in which Russia will participate with a cut of 0.3 million barrels per day in September, are likely to be too deep if the IEA is correct in its calculations. It is estimated that the need for OPEC oil is 30 million barrels per day in 3Q/23 and 29.8 million barrels per day in 4Q/23,” they continued.
Analysts noted in the report that Saudi Arabia would need to produce more than 11 million barrels per day for OPEC to reach that level and not the 9.0 million barrels per day it is producing now.
“We believe Saudi Arabia will add supply in 4Q/23 to prevent oil market overheating,” the analysts said in the report.
Analysts also noted in the report that the IEA estimates the world will need OPEC to produce 29 million barrels per day by 2024.
“This represents a drop of 0.3 million bpd from 2023 as non-OPEC supply is forecast to grow faster than global demand,” the analysts said.
“If non-Saudi OPEC producers produce the same in 2024 as they have so far in 2023, then Saudi Arabia’s oil requirement in 2024 will be 10.3 million barrels per day. This is more than which Saudi Arabia looks set to produce this year and more than its average output during 2015-19 of 10.1 million barrels per day,” they added.
“So Saudi Arabia looks like it’s going to be perfectly fine in 2024 with good market control with the ability to raise and lower production and keep the oil price right where it wants it to be. And with Saudi production now below of Russia, it won’t have to do all the heavy lifting by itself,” the analysts said.
If “painful cuts” are needed in 2024, Russia will join in with deliberate cuts, analysts say.
SEB analysts noted in the report that US shale oil production has been cooling steadily since early December “with the rig count even at a WTI price of 80 dollars per barrel.”
“This change in behavior has returned to OPEC considerable market power that it and Saudi Arabia are currently exercising and will continue to exercise in the coming years,” the analysts said in the report.
“The biggest risk to Saudi Arabia’s control of the situation would likely be a sudden revival of lost production by OPEC laggards such as Venezuela, Iran, Nigeria, Angola and Libya,” they added.
The total U.S. rig count is currently 631, according to Baker Hughes’ latest rotating rig count, which was released on Sept. 1. That count has dropped 129 rigs year over year, the count showed, noting that the US has cut 84 oil rigs. and 48 gas rigs, and added three miscellaneous rigs, compared to this time last year.
In its latest Short-Term Energy Outlook (STEO), which was released last month, the U.S. Energy Information Administration (EIA) projected that U.S. crude oil supplies would reach 12.76 million of barrels per day this year and 13.09 million barrels per day in 2024. .
Production from the lower 48 states excluding the Gulf of Mexico (GOM) was projected in the STEO at 10.52 million barrels per day in 2023 and 10.81 million barrels per day in 2024.
Brent went from a close of $72.26 a barrel on June 27 to a close of $87.55 a barrel on August 9, before falling to a close of $83.36 a barrel on the 24 of August The commodity rose to close at $90.04 a barrel on September 5. At the time of writing, the price of Brent crude is trading at $89.28 a barrel.
The EIA forecasts in its August STEO that the Brent spot price will average $82.62 per barrel this year and $86.48 per barrel next year. In a report sent to Rigzone last week, Standard Chartered predicted the price of Brent ICE would average $91 per barrel this year and $98 per barrel next year.
In a separate report posted on SEB’s website on August 29, Schieldrop noted that SEB’s view is that Saudi Arabia will not risk pushing crude oil prices to $100-110 a barrel or more through deliberate cuts “as this will cause a high political storm from the US and perhaps also from China”.
“We believe that Saudi Arabia is completely satisfied with the current oil price of $85 a barrel and we want to keep it at that level. Of course, getting it right is complicated, but they have the ability to at least do it well,” he added in this report.
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