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Saudi Arabia could begin easing its production cut sooner than oil market participants believe as the world’s top crude oil exporter wouldn’t risk demand destruction through too high prices, consultancy Rapidan Energy Group says.
Due to the Saudi and OPEC+ cuts and falling commercial crude inventories in the U.S., oil prices climbed to their highest levels in months in early trade on Thursday —the U.S. benchmark jumped to a 13-month high and Brent hit the highest price since November 2022 and a new high for 2023.
Early this month, Saudi Arabia extended its 1 million bpd cut through December. The production levels would be reviewed each month until the end of 2023.
According to Rapidan Energy’s president Bob McNally, Saudi Arabia could start easing the cuts sooner than traders realize as it wouldn’t want to overheat the market.
“They do not want to deliberately over-tighten the market, because if you get a spike, then you get a demand collapse, and you get a bust,” McNally told Bloomberg Television in an interview on Thursday.
“The real sensible way to bring prices to heel is for Saudi Arabia and OPEC+ to say: ‘We’ve made our point, we’ve scared away the speculative shorts’,” the energy expert added.
Last week, Warren Patterson, Head of Commodities Strategy at ING, said that even though the oil price rally had “more room to run,” a break above $100 per barrel for Brent wouldn’t be sustainable.
“OPEC+ will also want to be careful about overtightening the oil market. They will be shooting themselves in the foot if they push prices to levels where we start to see an increased risk of demand destruction,” Patterson wrote in a note.
“OPEC+ will continue to review supply cuts on a monthly basis, so we could very well see the group – or at least Saudi Arabia – gradually ease its additional voluntary cuts this year, which would help take some pressure off the market.”
By Tsvetana Paraskova for Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.