Crude oil prices may hit $100/bbl after OPEC+ decision, say analysts
- In a meeting over the weekend, Saudi Arabia, the OPEC kingpin, decided to extend production cuts taken in April through to 2024.
crude oil priceshad averaged $75.6 per barrel in May 2023, as compared to a peak of $122.9 per barrel it hit last June.
- In Asia trade on Monday, Brent crude oil rose by as much as 2.5% after Saudi Arabia’s decision was announced.
AdvertisementCrude oil is likely to trade with an upward momentum after oil cartel OPEC+ decided to extend its production cuts through to 2024. Analysts who track the black gold prices are now predicting that Brent crude prices may hit $100 per barrel by the time 2023 ends.
In a meeting over the weekend, the cartel decided to extend a surprise production cut taken in April. In April, OPEC+ or Organization of Petroleum Exporting Countries and allies, had agreed to cut production by 1.6 million barrels per day. This comes after their April cut did not produce the desired effect, as a soft global economic outlook continued to hammer down prices.
Speaking to the Economic Times, Fereidun Fesharaki of Facts Global Energy, said that he expects Brent to hit $105 per barrel by the time 2024 starts. G Chokkalingam, founder and head of research at Equinomics Research, also holds a similar view.
In Asia trade on Monday, Brent crude oil rose by as much as 2.4% before settling at around $77 a barrel. “West Texas Intermediate futures jumped almost 5% early in the session before paring gains to trade under $73 a barrel while global benchmark Brent changed hands at about $77,” said a morning update by research firm SMIFS.
Before the production cut,
Brent crude oil prices had averaged $75.6 per barrel in May 2023. During the same time last year, in June, they peaked to $122.9 per barrel.
OPEC+ accounts for around 40% of the world’s oil production, and its decisions have a sway over the market and the prices. Yet, after Germany has slipped into recession, and demand from China yet to pick up, the prices of the commodity have been soft.
Saudi goes for a voluntary production cut
The world’s largest oil producer Saudi Arabia, the major player in OPEC, said that it will trim oil production by another millions barrels per day in July. With the voluntary cut, Saudi Arabia’s production fell to the lowest level for several years. In April, the Middle Eastern nation had announced a voluntary cut of half a million barrels per day.
“The kingdom (of Saudi Arabia) also said the latest cut could be extended depending on market conditions. This brings Saudi Arabia’s total production levels to around 9 mbpd in July compared with 10.5 mbpd in April. Energy Minister Prince Abdulaziz bin Salman also said he will do whatever is necessary to bring stability to this market,” said Ravindra V Rao, CMT, EPAT, VP-Head Commodity Research, Kotak Securities.
The rest of the 23-nation group offered no additional action to buttress the current market, but did pledge to maintain their existing cuts until the end of 2024.
“Markets are likely to tilt into a deficit in the second half of 2023, if Chinese demand recovery materializes. With rising odds of a Fed pause in June coupled with tightening supplies, we might see oil prices trading with an upside momentum,” said Ravindra V Rao, CMT, EPAT, VP-Head Commodity Research, Kotak Securities.
Analysts also add that the voluntary cut is taken to drive downside protection, rather than spur a sustained rally. In spite of these moves, oil prices will be driven by a broader outlook of macroeconomic weakness.
According to the IMF, global GDP growth is expected to fall to 2.8% in 2023, after growing at 3.4% percent in 2022. It also expects the growth to settle at 3% percent in 2024.
(With IANS inputs)
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