Oil prices are now a lot more likely to rise after OPEC+ extended the cuts into 2024 and Saudi Arabia announced an additional reduction of 1 million bpd for July, Fatih Birol, the Executive Director of the International Energy Agency (IEA), was quoted as saying on Monday.
Expectations already were that there would be an imbalance in the oil market in the second half of the year; now the supply-demand gap will worsen, CN Wire quoted Birol as saying.
On Sunday, the OPEC+ producers decided to keep the current cuts until the end of 2024, while OPEC’s top producer and the world’s largest crude oil exporter, Saudi Arabia, said it would voluntarily reduce its production by 1 million bpd in July, to around 9 million bpd.
The IEA has been warning this year that supply cuts risk increasing oil and energy prices at a time of heightened uncertainty.
After the surprise OPEC+ cuts announced in early April, the IEA said in its Oil Market Report for the month that the “surprise OPEC+ supply cuts announced on 2 April risk aggravating an expected oil supply deficit in 2H23 and boosting oil prices at a time of heightened economic uncertainty, even as industrial activity slows in the world’s largest economies and production growth outside the alliance appears robust.”
On Monday, oil prices rose, and analysts reiterated their calls for higher prices by the end of the year, including as high as $100 per barrel.
Goldman Sachs, which sees Brent at $95 per barrel in December, described OPEC+’s meeting as “moderately bullish” to its forecast and offsetting some bearish downside risks such as higher supply from sanctioned Russia, Iran, and Venezuela and weaker-than-thought Chinese demand.
The Saudi cut “should provide some limited immediate upside for the market, and it should also reinforce Saudi Arabia’s commitment to try to put a floor under the market,” Warren Patterson, Head of Commodities Strategy at ING, said on Monday.
ING left its price forecasts unchanged for now and still expects ICE Brent to average $96 a barrel over the second half of this year.
“The macro outlook continues to be a more important driver for prices than fundamentals at the moment.”
By Michael Kern for Oilprice.com
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