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Are OPEC+ Members Ignoring 2024 Production Cuts?

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Citi: Oil Prices Unlikely To Hit The High $80s After Saudi Output Cut

While many analysts see the latest Saudi oil cut surprise as bullish or at least moderately bullish for prices, Citigroup thinks that the 1 million bpd cut from the world’s top crude exporter is not likely to result in an oil price run-up to the high $80s or low $90s per barrel.

“The likelihood that Saudi Arabia would tackle this on its own on a sustained basis is quite low,” Citi said in a note on Tuesday carried by Reuters.

The bank, like other investment banks, believes the cut will lead to a wider deficit on the market in the second half of this year. But this doesn’t mean that prices will go up, according to Citi.

The bank, whose analysts have been bearish on oil this year, considers that the possibility for lower – instead of higher – prices could be greater, due to possible weaker demand due to recessions in the U.S. and Europe, weaker recovery in China, and higher supply from non-OPEC producers by the end of the year.

After the previous OPEC+ surprise for the market, when several large producers announced in early April additional cuts through the end of 2023, Citi was also contrarian and said it expected oil prices to dip instead of rally further despite OPEC+’s efforts in that direction.

Analysts reiterated on Monday calls for higher prices, following Sunday’s OPEC+ meeting after which Saudi Arabia said it would voluntarily reduce its production by 1 million bpd in July to around 9 million bpd.

ANZ analysts Daniel Hynes and Soni Kumari reiterated their $100 per barrel Brent target for the end of the year, saying that “Investors are likely to add bullish bets, comfortable that Saudi Arabia and OPEC will provide a backstop should the market hit any hurdles.”

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.

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By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on June 06 2023 said:
    Citi is wrong. The minute persistent fears about a global banking or financial crisis triggered by a shaky US banking system disappears altogether from the market prices will recover their recent losses in no time and resume their surge towards $90-$100 a barrel in 2023.

    Moreover, the Saudi voluntary production cut of 1.0 million barrels a day (mbd) was not intended to bolster prices since the decline in prices over the last three months has nothing to do with the fundamentals of the market which remain robust and everything to do with persistent fears of a banking or financial crisis.

    There were two motives behind the Saudi cut. The first is to give teeth to Saudi Energy Minister Prince Abdulaziz bin Salman's to speculators and short sellers and maintain his credibility.

    The other motive has to do with declining Saudi oil production. For years Saudi production has been on the decline reaching an estimated 6.0-6.5 mbd currently. With Saudi consumption this year averaging 3.60 mbd, the Saudis can only realistically export 2.4-2.9 mbd. To be able to export 6.0-6.5 mbd to satisfy their budget needs, they have had to draw an estimated 3.6 mbd from their oil inventory. The cut of 1.0 mbd during the month of July enables them to replenish their oil inventory by 31 million barrels.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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