OPEC+ maintains its stance amid the turbulent oil prices caused by the banking crisis

(Bloomberg) — OPEC+ still finds that the best response to the growing uncertainty in the oil market is to stand firm.

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As the banking crisis last month dragged crude oil futures to a 15-month low near $70 a barrel in London, speculation arose that Saudi Arabia and its partners might intervene. by cutting new output to revive the market.

But despite all the upheaval, OPEC+ shows every sign of sitting still. The Saudis have said publicly that the 23-nation coalition should keep output levels steady throughout the year. Delegates separately predict that, when key members hold their supervisory meeting on Monday, they will not make any adjustments.

Fears of financial contagion are easing and the focus is once again on resurgent China’s oil demand, along with pressure on Russian output since it invaded Ukraine. . Crude oil futures rebounded strongly to nearly $80 a barrel, supporting revenue for Riyadh and its allies.

“OPEC can intervene in the market when they feel oversupplied,” said Marco Dunand, chief executive officer of commodities trader Mercuria Energy Group Ltd. support.”

The oil market outlook facing the Organization of the Petroleum Exporting Countries and its partners remains cloudy.

Confidence that prices are returning to $100 a barrel, common in the oil industry at the start of the year, was shaken as Russian exports proved resilient to international sanctions. It looks like global supply will be in excess this quarter.

China’s modest new economic growth target of 5% has also dampened optimism among oil investors. Even Goldman Sachs Group Inc., perhaps the most enthusiastic bull on Wall Street, has downgraded its predictions for a triple-digit rebound this year.

The fallout from the collapse of the Silicon Valley Bank and the collapse of Credit Suisse Group AG further darkened the outlook for crude oil.

Determination test

There is speculation that the downside could test the resolve of Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, who said last month that production targets are set as OPEC+ cuts production. volume at the end of 2022 “will remain for the rest of the year. “

Those predictions eased amid the subsequent crude oil recovery.

“The leaders of OPEC will most likely decide that there is no need to exercise the option of additional cuts” next week, said Helima Croft, head of commodity strategy at RBC Capital Markets LLC. “But we don’t see this group continuing to operate on autopilot until the end of the year if oil enters another spiral.”

Top oil traders like Trafigura Group Pte Ltd. and Gunvor Group don’t expect prices to drop any further. In fact, they predict a rebound in the second half of 2023 when China fully recovers from years of Covid shutdown. Goldman Sachs, while lowering its initial price expectations, doubled down on its call for a commodity boom.

Global oil demand remains on track to grow by 2 million bpd this year to a record 102 million bpd, sending the market into a deficit this summer, according to the International Energy Agency in Paris. .

The strong outlook for oil consumption is accompanied by a drop in global supply.

Russia, a member of the OPEC+ alliance, announced an output cut of 500,000 bpd this month in retaliation for sanctions and promised to maintain the cuts until June. European countries have banned barrels of Russian oil and provide support services only to countries purchasing shipments for less than $60 a barrel.

While the country’s oil industry has so far defied predictions of a collapse by redirecting crude flows to Asia, there are signs that trade is slowing, with shipments fuel cargo floating off the coasts of Europe, Africa and Latin America.

Further disruption is being felt in OPEC member Iraq. A new legal dispute between Baghdad and the Kurdish region in the north of the country is locking down the roughly 400,000 barrels a day that normally flows through Turkey to reach international markets.

When OPEC+ meets in early June to review output levels for the second half of the year, the organization may have a chance to open the tap. In the meantime, ministers will likely maintain a wait-and-see approach, said Bob McNally, president of Rapidan Energy Group and a former White House official.

“I doubt they would bow their heads and open their eyes wide,” McNally said.

–With support from Salma El Wardany, Ben Bartenstein and Fiona MacDonald.

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