Saudi Arabia supply decision will determine direction of oil prices

In addition to supply cuts from the OPEC+ group, which is made up of the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producing countries, the output cut of 1 million barrels per day is expected to result voluntarily implemented by Saudi Arabia determine the course of oil prices.

Energy and oil ministers from 13 OPEC members, led by Saudi Arabia, and 10 non-OPEC oil-producing countries, led by Russia, will meet on Sunday in Vienna, the capital of Austria, to assess the market conditions and review production policies.

At the meeting, markets will seek the answer to the question of whether Saudi Arabia will continue in 2024 with the additional production cut of 1 million barrels per day, which it has voluntarily implemented since July.

A BALANCED MARKET IS EXPECTED IN 2024

Although producing countries, led by Saudi Arabia and Russia, say they make decisions on production levels to keep markets in a healthy balance, the supply cuts also aim to keep the countries’ oil prices at the desired level and thus protect your income.

Oil prices hit their lowest levels in four months last week due to weak demand and concerns about oversupply in the markets. The price of a barrel of Brent oil fell to $76.60 and the price of a barrel of WTI crude oil fell to $72.17.

According to the International Energy Agency’s latest oil market report, global oil demand is expected to average 101.5 million barrels per day in the first quarter of next year. In the same period, taking into account the current agreement of the OPEC+ group, global oil supply is expected to be 102.8 million barrels per day on average. This represents a surplus of approximately 1.3 million barrels per day despite production cuts.

According to the report, which predicts that excess supply will gradually decrease in the second and third quarters, and that supply will fall slightly behind demand in the last quarter, demand for the whole of 2024 is estimated to be 102, 9 million barrels per day, and the supply will be 103.4 million barrels per day. Thus, for next year an average daily surplus of 500 thousand barrels is expected.

According to OPEC’s monthly oil market report for October, global oil demand is estimated to be 103.6 million barrels per day on average in the first quarter of next year. OPEC announced that global oil supply averaged 101.6 million barrels per day in October.

According to Rystad Energy, an independent research company based in Norway, if Saudi Arabia ends its production cuts, there will be an increase in supply in the first quarter of next year and markets will balance. In the second quarter of the year, the markets will face an excess supply of more than 600 thousand barrels per day. Considering this year’s average daily supply shortfall of 1.2 million barrels, the oil market is estimated to be relatively balanced next year.

SAUDIANS WANT AT LEAST 80 DOLLARS

Rystad Energy senior vice president Jorge León said markets are closely monitoring the outcome of Saudi Arabia’s voluntary production cut of 1 million barrels per day, which has been implemented since July.

León noted that Saudi Arabia is trying to keep prices high by limiting production and has reduced its share of the global market with its strict oil supply policy.

Noting that oil prices have been on a serious downward trend in recent weeks, León said: “As is known, Saudi Arabia wants prices to be at least $80 per barrel, and this latest decline may give an idea about the decision that will be made at the OPEC+ group meeting.” saying.

Recalling that Saudi Arabia first announced the production cut of 1 million barrels per day at the OPEC+ group meeting in June, León said:

“The markets are focused on the decision that Saudi Arabia will make. The country could extend these cuts until 2024, gradually reduce them or end them completely at the end of 2023. “Whichever path it takes, Saudi Arabia’s decision will have significant impacts on oil markets and, in particular, prices of next year’s oil.

OIL PRICES IN POSSIBLE SCENARIOS

Stating that they are working on five different scenarios on possible decisions on Saudi Arabia’s production policy and their effects on oil prices, León said:

“In the scenario in which we assume that Saudi Arabia will not continue with its voluntary production cut in 2024, the downward trend in the market is expected to continue and oil prices will be slightly above $80 per barrel in average next year. “In the opposite scenario, in which the cuts are extended until April 2024 and then gradually reduced until August 2024, oil prices are estimated to average $96 per barrel next year.”

León said: “Next year, average oil prices will be $84 under the scenario in which the production cut is reduced very quickly and completely ended in April 2024, and $87 under the scenario in which which is gradually reduced until June 2024. “Under the scenario in which it will be gradually reduced until July 2024, it is expected to be $92.” he said.

After noting that, according to the latest estimates from the International Monetary Fund, Saudi Arabia’s preferred oil price is $86 per barrel, León added that the country will be willing to sacrifice its market share at least until June 2024 to achieve this. price level. .