With market sentiment pessimistic about oil demand growth and with rising U.S. crude oil production, Saudi Arabia needs to take action sooner rather than later to support oil prices at least around US$60 a barrel Brent, IHS Markit said in an analysis on Thursday.
Although OPEC’s largest producer and de facto leader Saudi Arabia has been cutting much more than required under the OPEC+ deal, oil prices have lingered well below the reported breakeven price for Saudi Arabia –around US$80 a barrel.
Brent Crude slipped below US$60 per barrel last week, after the U.S. and China escalated the trade war, rekindling fears of slowing global economic and oil demand growth.
Despite losses of barrels from Iran and Venezuela due to the U.S. sanctions, OPEC may have to cut its production by another 1 million bpd “for prices to be supported close to 60 USD per barrel for long,”
Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, at IHS Markit wrote.
This view is shared by other analysts.
In the current gloomy market sentiment, OPEC would need to deepen the production cuts by 1 million bpd if the cartel wants to move up the price of oil, Emma Richards, senior industry analyst at Fitch Solutions, said two weeks ago.
Saudi Arabia would need to take action to support oil prices at above $60 a barrel, all the more so because the Kingdom would need as high a price as possible in view of the listing of its giant oil firm Aramco, Katsoulas said.
One key uncertainty in a Saudi plan to take a more decisive action to boost oil prices could be how willing Russia would be to continue its cooperation with OPEC in the production cut deal, IHS Markit’s analyst added.
“Russia’s participation can’t be taken for granted, even if President Vladimir Putin seems to value the relationship established with OPEC, as several Russian companies already face difficulties due to the production cuts,” Katsoulas noted.
By Tsvetana Paraskova for Oilprice.com
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Riddle me this, how much longer can this frickin’ nonsense go on?