Read in this article
- The OPEC + alliance will continue its production policy during its next meeting
- Coalition decisions cannot be predicted. The oil market is waiting for any surprise
- Further voluntary cuts by 9 countries are likely to become mandatory
- Oil prices are risky in the near term
The eyes of the oil markets are directed to the OPEC + meeting, which is scheduled to be held on June 4, 2023, to determine the production policy in the coming period, after several countries in the alliance announced an additional voluntary cut in order to achieve stability and balance, which raised speculation about the decisions that will be revealed at the next meeting. and its impact on oil prices.
Saudi Arabia and 8 other countries in OPEC + announced a voluntary reduction in oil production, by a total of 1.66 million barrels per day, in the period from May 2023 until the end of the year, in addition to the reduction agreed upon by the coalition by two million barrels per day in the period from November 2022 until the end of the year. year end.
In this regard, the specialized energy platform polled the opinions of elite experts about their expectations for the decisions of the next OPEC + meeting, and whether we will witness a new production cut, as well as the range of oil prices in the second half of 2023.
A new cut in OPEC + production in this case
The founder of the “Vanda Insights” Center on Energy Markets, Vandana Hari, expected that the OPEC + alliance would continue on its path during its next meeting, which will be held on June 4.
And she explained – in exclusive statements to the specialized energy platform – that the alliance always gives itself time to reach full compliance, and monitor the impact of any production cuts in the actual market, before taking any other steps.
“However, the market will also factor in the risk of a surprise, as the OPEC+ alliance has presented a number of such surprises in recent years,” she added.
The opinion was shared by the head of the American Rapidan Energy Company, Bob McNally, who confirmed that the coalition ministers prefer to extend their agreement, and allow the production cuts this month to enter into force.
However, he indicated that another production cut “may appear on the table”, in the event that oil prices decline further at the weekend, amid very pessimistic sentiments about the macro economy.
Senior advisor on foreign policy and energy geopolitics, Omod Shukri, believes that a drop in oil prices to $75 a barrel may lead to stimulating discussions within OPEC+ about adjusting production levels to manage the market.
Shukry mentioned – in exclusive statements to the energy platform – that the coalition has historically made decisions about oil production cuts or increases, in response to various factors, including market conditions and supply and demand dynamics.
Adhere to caution after recent cuts
For his part, said commodities analyst at Swiss bank UBS Giovanni Stanovo that the alliance will stick to its cautious stance, with the aim of maintaining the balance of the oil market.
He said – in his statements to the specialized energy platform – that the recent voluntary production cuts were implemented recently. Therefore, it needs time to affect the balance of the market, but he stressed that there are continuing concerns driven by fears of economic growth in the United States and China, on the other hand.
The editor-in-chief of the “Petroleum Economist” platform, Paul Hiken, indicated that there does not seem to be much desire on the part of OPEC + ministers to cut production further, shortly after the last round of cuts.
The following infographic – prepared by the specialized energy platform – shows the size of the additional cuts implemented by 9 countries of the coalition until the end of the year:
Paul Hicken said coalition ministers may prefer to wait and see the impact of these current cuts on the actual market, according to his comments to the specialized energy platform.
For her part, Dr. Sarah Fakhshuri, head of SVB Energy International, believes that it is very difficult to predict the results of the next OPEC+ meeting.
In her remarks to the energy platform, she said: “Prices are relatively low compared to the previous month, but at the same time, we are heading into the summer season and seasonal high demand for oil.”
Will the voluntary demotion turn into compulsory?
The founder of the “Vanda Insights” Center on Energy Markets, Vandana Hari, said that the OPEC + alliance may formalize voluntary cuts by 9 of its members, at the next meeting.
When asked about the possibility of achieving a Saudi surprise with a new voluntary cut on the part of the Kingdom, she said: “It is difficult to see the Kingdom offering an additional voluntary cut alone, especially at a time when Russia is providing just over half of the cut it has pledged, amounting to 500,000 barrels per day.”
The editor-in-chief of the “Petroleum Economist” platform, Paul Hicken, indicated that the most likely scenario is that the OPEC + alliance converts voluntary cuts into a more formal agreement to improve credibility and accountability.
He made clear – in his remarks to the energy platform – that there might be some adjustments in the deal to incorporate the wider group.
In the same context, the head of the American Rapidan Energy Company, Bob McNally, said that it is likely that a small subgroup of OPEC + members will cut oil production, after the voluntary cut announced by 9 member countries last April.
He added, “It is not possible to rule out a repetition of the voluntary cuts that Saudi Arabia made in January 2021, but the ministers prefer collective cuts,” according to his statements to the specialized energy platform.
Senior foreign policy advisor and energy geopolitics Umud Choukri stated that Saudi Arabia would be able to cut production voluntarily, if necessary.
Oil price forecasts in 2023
Vandana Hari, founder of the energy markets center Vanda Insights, forecasts that the Brent crude price will average around $75 per barrel in the second half of 2023.
Umod Shukri, senior adviser on foreign policy and energy geopolitics, believes that crude prices could reach $75 a barrel in the second half of the year.
Shukry explained – in his statements to the specialized energy platform – that there are some factors that could affect oil prices during the second half of 2023, represented in the global demand for oil, geopolitical factors, the movements of OPEC + countries, shale oil production, environmental policies, and the transition to renewable energy.
He pointed out the importance of noting that unexpected events, such as natural disasters, economic shocks or technological developments, could significantly affect oil prices.
In addition, geopolitical events or supply disruptions in major oil-producing regions may contribute to price volatility, Shoukry told the energy platform.
For his part, Paul Hicken, editor-in-chief of the “Petroleum Economist” platform, said that oil prices may remain under pressure in the near term, and may drop below $70 a barrel.
He indicated that it is likely to return to the level of $ 80 a barrel later in the year.
Risks to oil prices
The head of the American company Rapidan Energy, Bob McNally, said that a large supply and demand deficit is expected, and a sharp rise in crude oil prices to about $ 100 by the end of the year, according to the base case scenario.
However, McNally noted that confidence in this base case is weakened by negative macroeconomic headwinds arising from inflationary pressures, higher interest rates, tighter central bank credit conditions, and risks associated with war and sanctions.
So, while oil prices are rising in the medium term, the near term is fraught with two-way risks, McNally told the specialist energy platform.
For his part, Giovanni Stanovo, a commodity analyst at the Swiss bank UBS, said that he still expects that seasonal demand for oil will rise during the summer in the northern hemisphere, and that a decrease in production as a result of OPEC + production cuts would lead to a scarcity of supplies in the market. Oil, price support.
Dr. Sara Fakhshuri, President of SVB Energy International, believes that the market can expect a lower oil price range than the previous year, with the global economic slowdown, if no geopolitical or sudden factor occurs.
“Therefore, OPEC+ members may adjust their expectations to a new lower range for oil prices, rather than racing to cut production in hopes of maintaining a higher price range,” she said.
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