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Oil Prices Could Sink Without Further OPEC+ Action

Oil prices could sink if OPEC+ acts in line with market expectations and agrees to keep production quotas stable for another month, some analysts told Reuters.

The OPEC+ group meets on Sunday—although this meeting was recently determined to be a virtual one. The virtual nature of the meeting has signaled to some that the group would refrain from making big changes to its production plans for January. If OPEC+ does fail to make big changes to its production quotas—that is, if it fails to cut production even more—oil prices could fall.

OPEC+ agreed to drastically cut its production quotas by 2 million bpd last month, which first went into effect in November. The actual cut delivered by the group, however, was expected to be much more modest, somewhere around 1 million bpd, because several OPEC+ members were already producing under the new quota before it even hit.

OPEC+ could take a wait and see approach at this meeting and leave things mostly unchanged, pending a clearer picture of the fallout from the G7 embargo on Russian crude oil and China’s covid outcomes.

According to PVM Oil analyst Stephen Brennock, “a further cut in production cannot…be ruled out. Failure to do so risks sparking another selling frenzy.” Brennock did not specify how low prices could fall in that scenario.

Energy Aspects Amrita Sen also does not see OPEC+ shifting gears just yet, while EBS analyst Giovanni Staunovo said that weaker Chinese demand and the threat of more SPR releases from the United States could prod OPEC+ to cut production further.

Brent crude prices were trading up $1.62 per barrel on Thursday afternoon, to $88.59—a 1.86% rise on the day.

By Julianne Geiger for Oilprice.com

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  • Mamdouh Salameh on December 01 2022 said:
    If oil prices have seen their surge come to a temporary stop, it is because of concerns about China’s zero-COVID policy’s impact on its oil demand and also concerns about an impending recession. The minute China announces officially the end of lockdown or an easing of it, we will see prices surge with Brent crude price rising higher than $100 a barrel.

    And while recession will still drag prices down a little, the fundamentals of the global oil market will more than offset the recession drag because the global oil market is tight with a robust economy and a fast-shrinking spare production capacity.

    The proof is that despite the United States flooding the global oil market with 190 million barrels of SPR oil and the OECD adding another unspecified volume to the market, the impact on oil prices was very modest.

    Therefore, OPEC+ doesn't need to decide to cut production again in its meeting on 4 December secure in the knowledge that Russia’s retaliation against the proposed price cap of Russian oil exports will cause shortages in the market forcing Brent crude to rise to $100-$110 before the end of this year.

    Still, if prices need a helping hand, OPEC+ won’t hesitate to oblige.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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