Markets’ eyes are focused on the OPEC+ meeting next week, which raises questions about the future of oil prices if the group decides to further reduce production in light of the current geopolitical tensions.
In this context, sources in OPEC Plus said that the current restrictions on production may not be sufficient, and they expected that the organization would decide on deeper cuts at its next meeting, which it postponed until November 30, according to what was reported by Reuters.
However, some experts, including Asim Mansour, chief market strategist at Orbex, see a weak possibility of OPEC Plus making significant production cuts in the current period, and Mansour indicated that weak demand for oil will be the main driver of the markets.
Mansour said in statements to the CNN Economic Network, “OPEC has very limited ability to reduce the production rate, due to fears of losing its market share to American shale oil, which reduces the possibility of witnessing significant declines in production or their continuation for a long period.”
Mansour did not completely rule out the possibility of reducing production by OPEC, but he expected a limited impact of this decision on the markets. Due to an abundance of oil supply.
Toril Busoni, head of the Oil Markets Division at the International Energy Agency, supported this analysis in her statements to Reuters, expecting that the global oil market will record a slight surplus in 2024, even if OPEC Plus approves additional production cuts.
In June, the OPEC+ alliance approved extending the oil production cut to 40.46 million barrels per day until the end of 2024, and has not approved any additional amendments since then.
In addition, Saudi Arabia pledged a voluntary reduction in production in July by one million barrels per day, then extended it until the end of December 2023, and Russia decided to reduce oil exports by 300 thousand barrels per day, then also extended it until the end of this year.
How are oil prices affected by production reduction scenarios?
In his statements to CNN Economic, Assem Mansour referred to three possible scenarios. The first is an additional reduction in oil production from OPEC, which will have a limited impact on prices to remain between 70 and 85 dollars per barrel.
As for the second scenario, it is not to approve a reduction in production, and in this case the price increase will be very limited, not exceeding the level of $80 per barrel.
Mansour believed that the only scenario that might cause oil prices to jump towards the $100 per barrel barrier is the expansion of the war in Gaza and the entry of other parties into the conflict, especially Iran.
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Oil prices fall despite the Gaza war
With the outbreak of the Gaza war, fears of a lack of supply in the markets began, similar to the supply crisis that the global market witnessed at the time of the escalation of the war between Russia and Ukraine.
The worst possible scenario in the event that the Gaza events expanded was a weak supply by six million barrels, which would raise oil prices by about $150 per barrel, according to World Bank expectations.
Commenting on this, Mansour said, “I have always disagreed with these expectations; Because the current declines in oil prices are due to a crisis in demand, not just supply.”
He added, “Market concerns about the possibility of a weakness in demand; Due to central bank policies and interest rates reaching their highest levels in more than 22 years, this may lead to weak economic growth in 2024. Consequently, the demand for crude oil declined.”
On the other hand, the International Energy Agency raised its forecast for global oil demand growth in 2023 slightly from 2.3 million barrels per day to 2.4 million barrels per day, which increases the total demand during the year to 102 million barrels per day.
2023-11-23 15:01:45
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