OPEC+ In a Good Position to Keep Oil Around $85 Per Barrel
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas
OPEC+ is in a good position to keep oil at around $85 per barrel, according to a new report from Skandinaviska Enskilda Banken AB (SEB), which was sent to Rigzone earlier this week.
“We expect OPEC+ to be in solid control of the global oil market over the next couple of years as U.S. shale oil production slows to a trickle,” SEB analysts Bjarne Schieldrop, the company’s Chief Commodities Analyst, and Ole R. Hvalbye, noted in the report.
“An oil price of $85-90 per barrel should be a good balancing point for consumers and producers,” the analysts added.
In the report, the analysts stated that OECD commercial oil inventories are up 111 million barrels over the past year but added that U.S. strategic petroleum reserves over the same period have declined “by almost the same amount – 95 million barrels”.
“The global oil market has thus been nearly balanced over the past year with no real increase in OECD inventories when the decline in U.S. SPR is considered,” the analysts said in the report.
The analysts also highlighted in the report that Saudi Arabia produced 10.5 million barrels per day in April “but then rapidly drew it down to only 9.0 million barrels per day in July to September”.
“This did wonders for the oil price, which has shot back up to around $85 per barrel,” the analysts stated in the report.
“This [is] exactly where we think Saudi Arabia wants to keep it if it can. It yields sufficient income while it is not so high that it stirs too much political kickback from its customers,” they added.
“The current deep cuts by Saudi Arabia – in which Russia will participate with a 0.3 million barrel per day cut in September – are probably way too deep if the IEA is correct in its calculations. It estimates that the need for oil from OPEC is 30 million barrels per day in Q3/23 and 29.8 million barrels per day in Q4/23,” they continued.
The analysts noted in the report that Saudi Arabia would need to produce closer to 11 million barrels per day for OPEC to reach this level and not the 9.0 million barrels per day it is producing now.
“We think Saudi Arabia will add supply in Q4/23 to prevent the oil market overheating,” the analysts said in the report.
The analysts also highlighted in the report that the IEA estimates that the world will need OPEC to produce 29 million barrels per day in 2024.
“That is down 0.3 million barrels per day from 2023 as non-OPEC supply is projected to grow faster than global demand,” the analysts said.
“If the non-Saudi producers within OPEC produce the same in 2024 as they so far have done in 2023, then the need for oil from Saudi Arabia in 2024 will be 10.3 million barrels per day. That is more than what it looks like Saudi Arabia will produce this year and more than its average production during 2015-19 of 10.1 million barrels per day,” they added.
“So Saudi Arabia looks set to be perfectly fine in 2024 with good control of the market with ability to both lift and reduce production and keep the oil price just where it wants it to be. And with Saudi production now below Russia’s, it won’t have to do all the heavy lifting itself,” the analysts went on to state.
If “painful cuts” are needed in 2024, then Russia will join in with deliberate cuts, according to the analysts.
The SEB analysts noted in the report that U.S. shale oil production has been steadily cooling since early December “with drilling rig count falling even at a WTI price of $80 per barrel”.
“This change in behavior has handed a lot of market power back to OPEC that it and Saudi Arabia are currently exercising and will continue to exercise in the coming years,” the analysts said in the report.
“The biggest risk to Saudi Arabia’s control of the situation would probably be a sudden revival of lost production by OPEC laggards like Venezuela, Iran, Nigeria, Angola, and Libya,” they added.
The total U.S. rig count currently stands at 631, according to Baker Hughes’ latest rotary rig count, which was released on September 1. This count is down 129 rigs year on year, the count showed, highlighting that the U.S. has cut 84 oil rigs and 48 gas rigs, and added three miscellaneous rigs, compared to this time last year.
In its latest short term energy outlook (STEO), which was released last month, the U.S. Energy Information Administration (EIA) projected that U.S. crude oil supply would come in at 12.76 million barrels per day this year and 13.09 million barrels per day in 2024.
Production from the Lower 48 states, excluding the Gulf of Mexico (GOM) was projected in the STEO to be 10.52 million barrels per day in 2023 and 10.81 million barrels per day in 2024.
Brent rose from a close of $72.26 per barrel on June 27 to a close of $87.55 per barrel on August 9, before dropping to a close of $83.36 per barrel on August 24. The commodity rose to close at $90.04 per barrel on September 5. At the time of writing, the price of Brent crude oil is trading at $89.28 per barrel.
The EIA projects in its August STEO that the Brent spot price will average $82.62 per barrel this year and $86.48 per barrel next year. In a report sent to Rigzone last week, Standard Chartered predicted that the ICE Brent price would average $91 per barrel this year and $98 per barrel next year.
In a separate report posted on SEB’s website on August 29, Schieldrop noted that SEB’s view is that Saudi Arabia will not risk driving crude oil prices to $100-110 per barrel or higher through deliberate cuts “as this will lead to elevated political storm from the U.S. and maybe also from China”.
“We think that Saudi Arabia is utterly happy with the current oil price of $85 per barrel and want to keep it at that level. Getting it exactly right is of course tricky, but they do have the capacity to at least get it ballpark right,” he added in that report.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas