OPEC+ considers drastic cut in oil supply
The OPEC+ alliance, led by Saudi Arabia and Russia, is considering adopting a considerable cut in its oil supply that would be announced tomorrow, Wednesday, when it will meet in person for the first time since the start of the pandemic.
That, at least, is the general expectation in world oil markets, where prices have already reacted to it with sharp rises.
UAE Energy Minister Suhail al-Mazrouei declined on Tuesday in Vienna to confirm the alleged plan to withdraw about 1 % of the world's oil supply from the market.
"Let's not be too hasty. There is a process. We have to listen to the technical team, which is meeting. We have to look at the report, the meeting, the market. And depending on that, we will make a decision," Al Mazrouei told reporters after arriving at the hotel where he is staying in Vienna.
Last Saturday, the Organisation of the Petroleum Exporting Countries (OPEC) surprised the industry by announcing that the meeting with its allies on 5 October would be face-to-face, rather than telematically as originally planned.
This call "at short notice for physical talks is important, as it highlights the seriousness" of the negotiations, Johannes Rauball, an expert at the energy market analysis agency Kpler, told Efe.
He recalls that "for OPEC, the crude oil markets are unbalanced and the group will have to take measures and present a plan for the coming months".
Kpler estimates that it should cut the joint production quota, set a month ago at 43.854 million barrels per day (mbd), by at least 1 million barrels per day.
Oil prices reacted already on Monday with strong rises to the expectation of such a cut, which would mean a fall of about 1 % in the world's crude supply.
A barrel of Texas Intermediate crude oil (WTI) ended yesterday's session at $83.64, 5.2 % higher than at the close on Friday, and Brent crude oil rose by 0.98 % to $88.82.
These values are still far from the peaks around $120/barrel in early June.
"Crude oil prices remain under pressure from recession fears, weaker Chinese demand for crude oil and a stronger US dollar. This has caused them to return to early 2022 levels," says Rauball.
For the analyst, this development is "surprising", as it implies the disappearance of the premium for the Russian invasion of Ukraine, and does not reflect the fall in the production capacity of most oil-exporting countries.
Given the situation, "the possibility of a large cut in (OPEC+) production is increasingly likely", he believes.
On the other hand, the expert believes that, when meeting in person, the ministers will "discuss in detail" the consequences of the oil embargo on Russian oil imports that will begin to be applied in the European Union (EU) in December.
According to Rauball, the oil group would want prices to remain "between $90 and $100 per barrel, as higher prices lead to demand destruction, and below this threshold they approach the fiscal breakeven point for many Gulf states".
Despite its invasion of Ukraine and the sanctions it suffers as a result, Russia will remain the second largest OPEC+ producer and the other alliance partners will maintain their neutral stance towards the conflict, the expert predicts.
What is certain is that Moscow will benefit if the increase in rising prices offsets the drop in sales to Europe that is expected as a result of the embargo.
Be that as it may, the combination of "strong OPEC+ management, the decrease in Russian crude supply and the end of the release of oil from the US's strategic oil reserves", make it clear that crude prices are set to rise in the midst of the current energy crisis.
"Brent should return to above 100 dollars/barrel by the end of the year and average 110 dollars/barrel by 2023," Rauball estimates.