Oil prices could hit $107 per barrel next year if OPEC+ producers do not reverse their production cuts in 2024, Goldman Sachs said, noting that a triple-digit price is not the bank’s base-case scenario.
On Tuesday, Saudi Arabia extended its 1 million barrels per day (bpd) cut through December 2023 in a move it says reinforces “the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets.” The cuts, which mean the Saudis will pump 9 million bpd until the end of the year, will be reviewed monthly to consider deepening the cut or increasing production, depending on the state of the market.
Russia also extended its 300,000 bpd export cut into December, with the option to review every month and potentially deepen the cuts or increase supply, according to market conditions.
The moves by Saudi Arabia sent oil prices soaring, with Brent breaking $90 and WTI nearing the $88 mark.
Following the announcements, Goldman Sachs Commodities Research wrote in a note that the extended cuts increase the upside risks for oil prices.
“Consider a bullish scenario where OPEC+ keeps the 2023 cuts…fully in place through end-2024 and where Saudi Arabia only gradually raises production,” Goldman’s analysts wrote, as carried by CNN.
This bullish scenario may push oil prices up to $107 per barrel in December 2024, the Wall Street bank said, but cautioned that this is not its base-case scenario.
“This is not our baseline view because we think the producer group is unlikely to pursue prices well above $100/bbl given the strong supply and investment response to the 2022 energy crisis, our high-frequency tracking of U.S. shale, and the political importance of U.S. gasoline prices,” per Goldman’s note carried by Reuters.
Other analysts say that the extended supply cuts from the two OPEC+ leaders, Saudi Arabia and Russia, do not warrant a $100 a barrel oil price, especially in light of persistent economic and oil demand concerns.
By Tsvetana Paraskova for Oilprice.com
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The Saudi cut has nothing to do with the market and everything to do with Saudi production difficulties. Saudi production is falling because of depletion and aging giant oilfields. After all, 90% of Saudi production has for the past 74 years been coming from five giant but aging and fast-depleting oilfields (Ghawar, Safaniya, Hanifa, Khurais and Zuluf) all of which are more than 74 years old and are being kept producing by a huge injection of water.
Saudi real current production is estimated at 6.0-6.5 million barrels a day (mbd) with 3.5-4.0 mbd coming from stored oil to raise the level of supply to 10.0 mbd. Saudi exports were estimated in August at 5.6 mbd, down from 6.3 mbd in July. By cutting production by 1.0 mbd, Saudi Arabia gives itself time to replenish its stored oil without which it could neither perform any major maintenance work nor would it be able to have any influence on the market and prices.
Saudi oil production is declining by an estimated 5% annually. By 2026 Saudi production is projected to fall to 5.1-5.5 mbd with consumption rising to 3.6 mbd leaving only 1.5-1.9 mbd for exports.
And by 2030 Saudi production would have fallen to 4.12-4.4 mbd with consumption rising to 4.0 mbd leaving only 120,000-400,000 barrels a day (b/d) for export by which time Saudi Arabia would have virtually ceased to remain a crude exporter.
As for Russia extending its export cut of 300,000 barrels a day (b/d), it is more of a gesture of solidarity with Saudi Arabia. Moreover, I believe this would hardly affect total Russia exports. The reason is that a tax rise on domestic petroleum products may have led to a decline in consumption thus enabling Russia to offset the cut and maintain its exports at pre-cut levels.
Goldman Sachs and the overwhelming majority of analysts are burying their heads in the sand and refusing to consider my arguments that the Saudi cut is prompted by production difficulties. They are scared to death that if my arguments prove correct, the myth of Saudi colossal oil power would be shattered turning the global market on its head and sending Brent crude to $150-$200 a barrel.
As for Golden Sachs’ projection that Brent crude could even rise to $107 in 2024, my answer is that this could happen anyway if the global economy grows faster.
OPEC+ would be satisfied with a Brent crude just above $100 as this price enables the overwhelming majority of its members to balance their budgets.
Still, a fair oil price, in my opinion, ranges from $100-110.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert