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Oil prices rose within the wake of the OPEC king Saudi Arabia’s decision to chop production by one other million barrels a day.
On Sunday, the Organization of the Petroleum Exporting Countries and its partners (often known as OPEC+) made no changes to their planned oil production cuts for the remaining of the 12 months. Nevertheless, the world’s largest oil exporter, Saudi Arabia, announced further voluntary reductions in production, which might be implemented from July.
Kingdom production will drop to 9 million barrels a day from about 10 million barrels in May, the Saudi Energy Ministry said in a press release.
Each indices were up greater than 2% on Monday during early trading in Asia, but fell to mid-morning. Global benchmark Brent futures recently rose 0.93% to $76.84 a barrel, while US West Texas Intermediate futures rose 0.98% to $72.44 a barrel. OPEC+ pumps around 40% of the world’s oil, and production decisions can have a big impact on prices.
On April 3, several producers of the oil cartel revealed a combined decline in production of 1.66 million barrels per day by the tip of this 12 months. Many market observers, including Goldman Sachs analysts, expected the alliance to maintain production unchanged this time around.
“The market didn’t widely expect Saudi Arabia’s decision to unilaterally reduce production by 1 million barrels a day,” Rapidan Energy CEO Bob McNally told CNBC in an email following the choice.
“This has once more demonstrated that Saudi Arabia is willing to act unilaterally to stabilize oil prices,” McNally said, citing an example from January 2021 when oil titan unilaterally cut production by a million barrels a day.
“We see large global deficits materializing within the second half of 2023 and oil prices above $100 next 12 months,” he added.
Similarly, Kang Wu, head of world demand and Asia Analytics at S&P Global Commodity Insights, estimates that a big increase in global oil demand throughout the northern hemisphere summer season will result in a discount in oil inventories and “support higher oil prices” in the approaching years. months.
“Final Failure”
This weekend marked the “ultimate defeat of the Saudis” who mobilized all OPEC+ members to take “what was vital to bring higher prices to market,” said Ed Morse, Citi’s global head of commodity research and managing director.
Morse told CNBC’s Squawk Box Asia on Monday that the oil market continues to be “extremely weak”, partially due to disappointing demand within the three largest consumption regions: China, the European Union and the USA.
“We now have the potential for supply to be much greater than where demand growth is heading,” he said, citing the potential for a recession on the horizon. “There is no such thing as a guarantee for that [oil prices] is not going to drop below $70,” he said.
The Commonwealth Bank of Australia believes Saudi Arabia will extend July’s production cuts if Brent futures remain within the $70 to $75 per barrel range and even fall below that level. “We consider Saudi Arabia will look to deepen production cuts if Brent futures permanently fall below $70 a barrel,” the CBA’s Vivek Dhar wrote in a research note on Monday.