Oil Markets Eagerly Awaiting Sunday OPEC+ Meeting
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Oil markets are eagerly awaiting the OPEC+ meeting on November 26 in anticipation of what kingpin Saudi Arabia decides over its voluntary crude oil production cuts of one million barrels per day.
That’s what Rystad Energy Senior Vice President Jorge Leon stated in an oil market update sent to Rigzone this week, adding that, “regardless of the path they take, Saudi Arabia’s decision on the production cuts will ultimately shape the short-term future of global oil prices”.
“The kingdom is balancing the desire to keep prices high by limiting supply with the knowledge that doing so will lead to a further drop in overall market share,” Leon said in the update.
“Crude prices have experienced significant downward pressure in recent weeks, with prices fell below $80 per barrel last week after a dramatic sell-off driven by oversupply concerns,” he added.
“This recent nosedive could be an indicator of what’s to come at the OPEC meeting, as the Saudis have repeatedly demonstrated that their price floor is above $80 per barrel,” he continued.
Leon noted in the update that the main topic of the 36th OPEC and non-OPEC Ministerial Meeting on Sunday will be confirmation of production quotas next year, which he pointed out were drafted in the group’s June meeting.
“Saudi Arabia announced its voluntary cuts on the sidelines of that meeting, initially committing to a one million barrel per day output cut for July,” Leon said in the update.
“This was then extended on a monthly basis into August and September, while in early September, Riyadh announced the extension until the end of this year,” he added.
“Oil markets will be looking to see if Saudi Arabia extends these cuts into 2024 or if it chooses to gradually unwind them or simply let them expire at the end of this year. Whichever way it goes, Saudi Arabia’s decision will have significant implications for oil markets and, in particular, for the oil price next year,” Leon went on to state.
5 Scenarios
In the update, Leon revealed that Rystad has run five scenarios on Saudi production policy for the next few months and estimated the impact they would have on oil prices.
Rystad expects the average oil price to hit $82 per barrel next year in a scenario where the Saudi voluntary cuts are not extended into 2024, the update outlined. The company expects the average oil price to be $84 per barrel in 2024 in a scenario where Saudi Arabia fully unwinds the voluntary cuts by April and $87 per barrel in a scenario where the Saudis unwind voluntary cuts gradually until June, the update revealed.
Rystad anticipates that the oil price will average $92 per barrel in 2024 in a scenario where Saudi Arabia extends the one million barrel per day voluntary cuts into January and February, and gradually unwinds them until July, and $96 per barrel in a scenario where the Saudis extend the cuts until April and gradually unwind them until August, according to the update.
“Our analysis shows that, in the scenario where Saudi Arabia does not extend the voluntary cuts, market bearishness will extend … [and the] oil price will average slightly above $80 per barrel next year,” Leon said in the update.
“On the other extreme, if Saudi Arabia extends voluntary cuts until April 2024 and then gradually unwinds them, oil price would average $96 per barrel in 2024,” he added.
“The latest estimate from the IMF suggests that Saudi Arabia oil breakeven price is $86 per barrel. Our analysis suggest that Saudis will need to keep giving away market share, at least until June 2024, to achieve that price level,” he continued.
OPEC+ Will Have to Step Up the Game
In a separate report sent to Rigzone recently, Skandinaviska Enskilda Banken AB (SEB) Chief Commodity Analyst Bjarne Schieldrop said, “all eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics”.
“OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024,” Schieldrop noted in the report.
“If Saudi Arabia is to carry the burden alone (with only a little help from Russia) it will likely need to keep its production at around nine million barrel per day on average for 2024 and drop it down towards 8.5 million barrels per day in Q1-24,” he added.
This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024, Schieldrop stated in the report.
“More specifically this means Iraq, Kuwait and UAE,” he added.
“The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December,” he continued.
“Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the U.S. will enforce sanctions on Iran on more than one million barrels per day,” Schieldrop went on to state.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas