OPEC+ is expected to continue cutting production until next quarter to avoid oversupply and support crude oil prices.
The Zhitong Finance App learned that OPEC+ is expected to continue cutting production until next quarter to avoid oversupply and support crude oil prices. OPEC+ will decide at the beginning of next month whether to extend the current production reduction agreement of about 2 million barrels per day until after March. According to a media survey, OPEC+ may need to continue to cut production as global demand growth slows and US crude oil production rises. Several OPEC+ representatives privately predicted that the production reduction agreement would be extended.
Bob McNally, president of consulting firm Rapidan Energy Group and a former White House official, said, “They will have to extend production cuts. Supply exceeds demand, and in order to keep prices stable, OPEC+ must stop these crude oils from entering the market.”
Tamas Varga, an analyst at the brokerage firm PVM Oil Associates Ltd., said, “OPEC+ has no choice but to extend the current production reduction agreement to avoid collapse.”
Amrita Sen, head of research at consulting firm Energy Aspects Ltd, said, “The spot market tells us that in fact, the market has tightened. We do believe OPEC+ will prolong production cuts in some way, and then the surplus will indeed disappear.”
In addition to extending production reduction agreements, OPEC+ member countries may need to speed up implementation of production cuts. Although Kuwait and Algeria quickly implemented the production reduction agreement, the current crude oil production in Iraq and Kazakhstan is still hundreds of thousands of b/d above the quota. The two participating countries have promised to improve their performance.
Since this year, the price of Brent crude oil has remained around $80 per barrel because supply from the US and other non-OPEC+ oil producers continues to increase, offsetting the impact of OPEC+ production cuts and concerns that the Middle East conflict may disrupt crude oil transportation.
Lower fuel prices may ease the concerns of major consumers such as the US and central banks about stubborn inflation. However, for many OPEC+ member countries, the current level of oil prices is a bit too low. According to Fitch Ratings, Saudi Arabia needs oil prices higher than $80 per barrel because Saudi Arabia is spending billions of dollars on economic transformation involving future cities and sporting events.
The International Energy Agency (IEA) said in a report last week that the global crude oil market is in excess, and if OPEC+ resumes production, the surplus will expand dramatically. The IEA said that although global crude oil demand is expected to reach a record level of 103 million b/d this year, the growth rate is slowing sharply. The IEA predicts that large supplies of crude oil from the US, Brazil, Canada, and Guyana can easily match consumption.