Global Courant
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Oil prices rose after OPEC protagonist Saudi Arabia’s decision to cut production by another million barrels per day.
On Sunday, the Organization of the Petroleum Exporting Countries and its partners (known as OPEC+) made no changes to planned oil production restrictions for the rest of the year. However, Saudi Arabia, the world’s largest oil exporter, has announced further voluntary production cuts to be implemented from July.
The output of the kingdom will fall to 9 million barrels per day of about 10 million barrels in May, the Saudi energy ministry said in a statement.
Global benchmark Brent futures rose 2.4% to $78.00 a barrel on Monday during early trading in Asia, while US West Texas Intermediate futures rose 2.5% to $73.53 a barrel. OPEC+ pumps about 40% of the world’s crude oil and production decisions can have a significant impact on prices.
As of April 3, several oil cartel producers had revealed a combined production drop of 1.66 million barrels per day through the end of this year. And many market watchers, including Goldman Sachs analysts, had expected the alliance to keep production unchanged this time around.
“The market did not widely expect the Saudi decision to unilaterally cut production by 1 million barrels per day,” Bob McNally, president of analytics firm Rapidan Energy, said in an email to CNBC.
“It has once again shown that Saudi Arabia is willing to act unilaterally to stabilize oil prices,” McNally said, citing the example of January 2021 when the oil titan unilaterally cut production by 1 million barrels per day.
“We see large global shortages emerging in the second half of 2023 and crude oil prices to exceed $100 next year,” he added.
Similarly, Kang Wu, head of global demand and Asia analysis at S&P Global Commodity Insight, estimates that the significant increase in global oil demand in the northern hemisphere’s summer season will lead to a decline in oil supplies and “support higher oil prices ” in the coming period. months.
‘Ultimate Failure’
This weekend marked an “ultimate failure of the Saudis” to assemble all OPEC+ members to do “whatever was necessary to bring better prices to the market,” said Ed Morse, Citi’s global chief of raw materials research and general manager.
Morse told CNBC’s “Squawk Box Asia” on Monday that it is still “an extremely weak” oil market, due in part to disappointing demand in the three largest consuming regions: China, the European Union and the United States.
“We have a potential that supply will far exceed where demand growth is headed,” he said, referring to the potential of a recession on the horizon. “There is no guarantee that (oil prices) will not fall below $70,” he said.
The Commonwealth Bank of Australia believes Saudi Arabia will extend production cuts into July if Brent futures remain in the $70 to $75 per barrel range, or even fall below. “We think Saudi Arabia will try to cut production if Brent futures fall sustainably below $70/bbl,” the CBA’s Vivek Dhar wrote in a research note Monday.
