OPEC supply cuts reflect concerns about market oil demand
Although the decision by Saudi Arabia and Russia to continue with the current production cuts in August did not have the expected effect on oil prices, experts argue that the cuts in question are aimed at ensuring market stability and that the increase Limited pricing reflects demand. investor concerns.
Saudi Arabia announced on Monday that it extended its 1 million barrel-a-day oil production cut, which it had voluntarily implemented in July, to include August.
It is reported that with this cut, which will be added to the voluntary production cut of 500,000 barrels per day announced by Saudi Arabia in April and which will continue until the end of December 2024, the country’s daily oil production will fall to the lowest level. in recent years, around 9 million barrels in August.
Following the announcement, Russia announced that it would reduce its daily oil supply by 500,000 barrels and Algeria by 20,000 barrels.
The Organization of the Petroleum Exporting Countries (OPEC) and the OPEC+ group, which consists of some non-OPEC producing countries, announced that they would cut production by 2 million barrels per day in October last year and decided to make a further cut. of approximately 1.6 million barrels per day as of May.
The supply cut statements that followed one another came at a time when the supply-demand gap narrowed in the markets and global macroeconomic data pointed to the danger of recession. Both Saudi Arabia and Russia argue that this decision was made to ensure market balance, despite the insistence of the International Energy Agency (IEA) and the United States (USA) to increase production.
Statements that many countries, including the US, will continue their tightening monetary policies, that China’s post-epidemic economic recovery is not at the expected pace, and that uncertainty about the country’s crude demand continues to fuel expectations negative in the markets. .
Although there are short-term bullish moves in oil prices with news flowing about supply cuts from Saudi Arabia, Russia and Algeria, growing concerns about weak oil demand restrain price increases.
The price of a barrel of Brent oil, which is accepted as an international reference, closed the day in which Saudi Arabia and Russia announced their decision to cut, with a decrease of 0.33 percent, at 74.65 dollars. The price of a barrel of Brent oil, which fluctuated throughout the week, closed the week at $78.17 with an increase of 4 percent.
INVESTORS ARE NOT Optimistic
Energy Point Research founder Doug Sheridan argued that the decision by Russia and Saudi to cut supply to balance the market is appropriate, saying the price drop below $70 can only be avoided by ensuring market stability.
Sheridan noted that markets tend to interpret these steps as short-term price support: “In the long run, this step may lead to Saudi Arabia, which is the only OPEC burden bearer, to take a step that will lead to a decline.” in prices pushing Saudi Arabia to exhaustion”. saying.
Noting that the latest announced cuts may force Saudi Arabia to come to grips and pave the way for the country to make a full-capacity production decision to show the risks of demand oversupply, Sheridan stressed that such a scenario would negatively affect the prices. but that prices must be allowed to fall to maintain market stability.
Sheridan continued:
“Market players see no reason to support price increases in the short term. OPEC is relatively bullish on global demand for crude oil at a time when major consuming countries are struggling with weak economic growth and a possible risk of a global recession, but investors do not seem to agree with OPEC.”
WEAK CHINESE OIL DEMAND AFFECTS PRICE DECLINE
London-based ADM Investor Services International chief economist and global strategist Marc Ostwald also said the low production decision by Russia and Saudi Arabia can be seen as an effort to ensure market stability.
Underlining that Saudi Arabia and Russia need higher prices to cover their budget expenses, Ostwald said: “When you factor in Russia, you need higher prices to finance the ongoing Ukraine war.”
Stating that investors in the market continue to focus on the demand side, Ostwald said: “Especially the high imports of crude oil from China in the first half of the year, but the re-export of most of it as petroleum products, raises demand-based concerns.” ” (BRITISH AUTOMOBILE CLUB)