The oil market is confused.
That’s what Bjarne Schieldrop, SEB’s chief commodity analyst, explained in a report sent to Rigzone on Thursday, adding that he can’t quite figure out whether the latest extension of Saudi Arabia’s unilateral cut until the end of the year is a reflection of the weakness to come, and an effort to preemptively try to keep oil prices from falling below $85 a barrel amid the coming weakness, or an effort to bring the oil price at $100-110 per barrel by the end of the year.
“If the IEA’s latest calculations for global demand in the third quarter and fourth quarter are correct, and Saudi Arabia sticks to its cuts, then global inventories will fall by 250 million barrels by the end of ‘year and Brent crude will rise to $100-110 per barrel, and Saudi Arabia will bear a lot of the blame,’ Schieldrop said in the report.
“Saudi Arabia’s latest action, if it takes the price of oil to $100 a barrel or more, must indeed cause some political heat from the US,” he added.
Schieldrop also noted in the report that “there is a possible excuse” for Saudi Arabia’s actions.
“We know that interest rates have risen rapidly over the past 12-18 months and that this is leading to a global economic cooling for the coming year,” he said in the report.
“Add to that the difficult housing market in China. Western consumers are buying less things from China. Chinese consumers are buying less things because they fear the economic situation. Chinese exports are down 8.8% year-on-year and imports are down 7 .3% year-on-year,” he added.
“Saudi Arabia has one of the largest physical oil books in the world. As such, it can see its customers’ oil purchase cards 1-2-3 months ahead. It can see what they are reserving and ordering for next 1-2-3 months. IEA calculations are the global balance sheet on paper. It’s a static snapshot. But the world is dynamic and changing all the time,” he continued.
“It is therefore possible that the extension of Saudi Arabia’s unilateral cut is a counter to looming weakness and an effort to prevent oil prices from falling below $85 per barrel rather than ‘an effort to drive oil prices to $100 a barrel or more. . It’s impossible to know for sure. What we can be pretty sure of, however, is that Saudi Arabia along with Russia run the show comfortably Schieldrop said.
Highlighting “another twist” in the report, Schieldrop said Saudi Arabia always has the option to change course in October and November.
“If it turns out that the cuts are too deep and the market is too short of oil, then it can increase production in November and December if necessary,” he noted.
In a market update sent to Rigzone this week, Rystad Energy Senior Vice President Jorge Leon stressed that the extension of Saudi Arabia’s one million barrel per day cut and the 300,000 export cut barrels per day from Russia until the end of the year “will significantly tighten global oil”. market and it can only lead to one thing: higher oil prices worldwide.”
Rystad’s SVP noted in the update that Chinese macroeconomic sentiment is a potential downside risk, but added that Rystad’s latest mobility indicators “do not show an imminent slowdown that could justify this move from Arabia Saudi”.
Ann Louise Hittle, vice president of oil markets at Wood Mackenzie, told Rigzone earlier this week that only the Saudi cut of one million barrels per day between October and December, if implemented over the three months, would tighten the market in winter, “favoring prices”. , already in the high $80s, in a range between $90 per barrel and $95 per barrel.”
“If prices move above $100 a barrel, the Saudis could ease the full 1 million bpd cut sometime in the fourth quarter,” Hittle added.
“Russia’s production cut, if fully implemented, would add additional pressure on prices,” Hittle continued.
A statement published on the website of the Saudi Arabian energy ministry on September 5 said: “An official source in the energy ministry announced that the Kingdom of Saudi Arabia will extend the voluntary curtailment of one million barrels per day, which was launched in July and extended to include August and September, for three more months until the end of December 2023, and in effect the Kingdom’s production for the coming months of October , November and December will be approximately nine million barrels per day”.
“The source stated that this voluntary cut decision will be reviewed monthly to consider deepening the cut or increasing production,” the statement added.
“The source also noted that this cut is in addition to the voluntary cut previously announced by the Kingdom in April 2023, which extends until the end of December 2024. The source confirmed that this additional voluntary comes to reinforce the precautionary efforts made by OPEC Plus. countries with the aim of supporting the stability and balance of oil markets”, he continued.
To contact the author, please send an email andreas.exarcheas@rigzone.com
