OPEC+ Chairman and Saudi Energy Minister Abdulaziz bin Salman said that OPEC+’s “precautionary” decision to postpone the increase in crude oil production until after the first quarter provides the organization with time to assess global demand, European growth and the development of the American economy.
On Thursday, a coalition of oil producers agreed Extend multiple production cutsThe timetable for the gradual lifting of voluntary production cuts of 2.2 million barrels per day by some OPEC+ members has been postponed by three months to April.
Some group members are making a second voluntary production cut, while the alliance as a whole is also limiting output under its formal policies – both of which will now be extended to December 31, 2026, rather than the previously scheduled end of 2025.
Saudi Arabia’s energy minister told CNBC’s Dan Murphy on Friday that OPEC+ must conduct a “reality check,” reconcile supply and demand signals with market sentiment and focus on “fundamentals while taking some steps to mitigate the negatives internally.” mood”. And, of course, there are outlines of what OPEC+ can do.
Analysts at Barclays partly echoed the minister’s sentiments, saying the alliance “maintains a cautious stance” and suggested “members’ concerns about market share may be overblown”.
Saudi Arabian Energy Minister Abdulaziz bin Salman, October 5, 2022.
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OPEC+ faces a host of variables affecting supply and demand patterns and geopolitical uncertainty, from economic growth amid falling inflation to conflicts in the oil-rich Middle East and President-elect Donald Trump’s return to the White House in January – a long-term The leader of the U.S. oil industry has imposed protectionist tariffs on China and sanctions on Iran over its nuclear program during his first presidential term.
“There are a lot of other things, you know, the growth of China, what’s happening in Europe, the growth of Europe… what’s happening in the U.S. economy, like interest rates, inflation,” Saudi Arabia’s energy minister said on Friday.
“But honestly, the main reason these votes are moving or shifting is (supply and demand) fundamentals. It’s not a good idea to bring a lot of votes in the first quarter.”
Inventories typically build in the first quarter as demand for transportation fuels falls.
OPEC+ member compliance
Analysts at HSBC assessed in a report on Friday that Thursday’s OPEC+ agreement was “mildly supportive” of the supply-demand balance, with the market surplus expected to be reduced to just 200,000 barrels in 2025 if the alliance of oil producers continues to increase production. /Day April.
“We do not rule out the possibility of another delay, which would keep the market overall balanced next year,” they said. “While the OPEC+ delay decision strengthens fundamentals in the short term, it may be seen as an implicit admission of subdued demand.”
Demand has always been the primary issue considered by OPEC+. OPEC’s November monthly oil market report predicts an annual increase of 1.54 million barrels per day in 2025.
Meanwhile, the Paris-based International Energy Agency forecast last month that global oil demand will increase by 920,000 barrels per day this year and nearly 1 million barrels per day by 2025.
Concerns about the outlook for China, the world’s largest crude oil importer, are particularly lingering, as the government has boosted its economic recovery through stimulus measures in recent months.
Abdulaziz bin Salman said OPEC+ has “not necessarily” lost confidence in global crude demand or China’s recovery, but acknowledged that “what doesn’t help is that some (OPEC+) countries are not properly fulfilling their commitments.”
OPEC+ is increasingly Strictly crack down on member compliance behaviors Implement separate quotas – which in the past have included countries such as Iraq, Kazakhstan and Russia – and require over-producing countries to make up for excess oil output through additional production cuts. The deadline for these compensations is now the end of June 2026.
Despite the three-pronged approach to extend production growth, oil prices have still fallen. At 2:46 pm London time, the Brent crude oil contract expiring in February was trading at $71.40 per barrel, down 0.96% from Thursday’s closing price. The front-month WTI January futures on the New York Mercantile Exchange fell to $67.63 per barrel, down 0.98% from the previous settlement price.
UBS strategist Giovanni said: “While prices are likely to remain volatile in the short term, we expect lower inventories this year and a closer market balance next year, which will support prices in the coming months, consistent with market concerns about a severe oversupply. A stark contrast to expectations.
