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This week’s decision from OPEC+ to cut the alliance’s collective oil production target by 2 million barrels per day (bpd) isn’t helping the already uncertain outlook of oil supply and oil trade flows, refiners and traders tell Bloomberg.
Earlier this week, OPEC+ announced the biggest cut to its collective target since 2020, slashing the production target by 2 million bpd. In reality, the actual cut from the current oil production level would be half that figure, at around 1 million bpd-1.1 million bpd, and shouldered mainly by Saudi Arabia and other Gulf producers, most analysts have estimated.
Yet, the oil output cut is set to raise costs for refiners and potentially tighten supply to the key oil-importing region, Asia.
The OPEC+ group’s move is expected to raise the cost of crude oil imports amid a rising U.S. dollar and expected higher fuel consumption during the winter, Kim Woo Kyung, a spokesperson for South Korean oil refiner SK Innovation, told Bloomberg.
However, the spokesperson noted that overall oil demand could be hit as economies slow.
India, the world’s third-largest crude oil importer, sees the OPEC+ production cut as a setback, government officials and sources at refineries told Bloomberg.
The OPEC+ production cut for November would come into force weeks before the EU embargo on imports of Russian crude oil by sea takes effect on December 5. These two factors create major supply uncertainty in the oil market in the near term.
India is already said to be looking to lock in term purchase contracts with crude producers, expecting a redirection of trade flows and a tighter market when the EU embargo on imports of Russian crude enters into force.
For oil prices, the OPEC+ cut is bullish, analysts said after the group’s meeting. Morgan Stanley said oil prices would rise again to $100 per barrel faster than previously estimated, and lifted its price forecast for the first quarter of 2023 to $100 from $95 per barrel. Goldman Sachs raised its Brent Crude forecast for this quarter by $10 to $110 per barrel.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
OPEC+’s cut is intended to balance the market and also defend the livelihood of its members by achieving a Brent crude price of $100 a barrel needed by the overwhelming majority of its members to balance their budgets.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert