Opec+ set to continue with its cautious approach toward oil output

Opec+ is expected to continue with its cautious approach at its upcoming meeting on Monday, September 5, and roll back the planned production increase for September or keep target levels unchanged, say analysts.

The Organisation of the Petroleum Exporting Countries and allies, including Russia, known as Opec+, had raised oil output quotas by 100,000 barrels per day at its latest meeting in August.

The crude oil prices have been trending down amidst global recession fears, rising chances of revival of the Iran nuclear deal and new restrictions due to Covid-19 in China.

“Opec+ is likely to continue with its cautious approach at Monday’s meeting… We estimate that, upon a deal being signed and sanctions lifted, Iran could increase. Oil output by 0.5 million barrels per day within three months and by at least one million barrels per day within a year,” said James Swanston, economist for the Middle East and Africa at Capital Economics.

“Iran reportedly has a large stock of oil in reserve that it could sell on the market immediately. Not only would this add to downward pressure on prices, but it makes the possibility of oil output cuts by other Opec members less likely to avoid giving up market share,” said Swanston in a note.

Brent was last trading at $93.02 per barrel, up 0.71 per cent while WTI was 0.3 per cent up at $86.87 a barrel. Oil prices were trading above $100 a barrel most of the year due to the Ukraine-Russia crisis and other global geopolitical uncertainties. But prices dropped in much of July-August as the market focused on burgeoning global recession fears.

Edward Bell, senior director for market economics at Emirates NBD Research, said to protect against any further downside in oil, Opec+ may look to cut production at upcoming meetings, as cautioned by Prince Abdulaziz bin Salman, oil minister of Saudi Arabia.

“Opec+ may not need to actually approve a cut in production at next week’s meeting but rather just roll back the planned production increase for September or keep target levels unchanged for October onward. The producers’ bloc was already failing to hit target levels in the last few months so letting the natural work of well depletion and underinvestment help to adjust oil market balances could set a floor under prices, even without a large — say 500,000 barrel to one million barrels per day — cut in production,” said Bell.

In the fourth quarter, he said, the effect of sanctions on Russia’s oil production will start to be felt much more.

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“EU sanctions on imports of seaborne Russian crude oil take effect from the start of December while sanctions on product imports will take hold in first quarter of 2023. There may be few options for Russia to divert its energy trade away from Europe should China’s economy take time to recover from the country’s Zero-Covid policies or other emerging economies are caught up in a global downturn. That may provide some buffer for the market, that demand and supply could decline in tandem, but inventories have also been drained and spare capacity is limited,” he explained.

Bell added that the current oil futures curve implies a general move lower in prices over 2023, but given the tight supply picture over the coming quarters, oil markets may need to prepare for more considerable upside shocks.

— waheedabbas@khalejtimes.com

• Dubai