Oil Price: Is a new oil price war on the horizon? – Arabic 21

Publish websiteOil PriceThe American newspaper reported warnings that a new price war was looming on the horizon of the oil market amid escalating tensions between oil-producing countries.

The website said, in its report translated by “Arabi 21,” that US crude oil production broke another record in September, which imposed additional pressure on the OPEC Plus group, which is looking to keep oil prices above $80 per barrel by controlling “market stability.” “. The disappointing OPEC+ meeting last week showed that there is opposition within the group about deeper cuts in production quotas. For its part, Saudi Arabia extended the additional voluntary production cut by one million barrels per day, and Russia pledged to further reduce production to 500,000 barrels per day from 300,000 barrels per day.

In addition, some other OPEC+ producers announced additional voluntary cuts, bringing the total OPEC+ supply cut to 2.2 million barrels per day for the first quarter of 2024. This is in addition to Russia reducing production by about 500 thousand barrels per day with export cuts of 300. One thousand barrels per day of crude oil and 200 thousand barrels per day of refined petroleum products, according to OPEC.

The website quoted analysts as saying that the OPEC Plus decision to reduce supplies, which the market considered unconvincing, is likely to put an end to the expected deficit early next year. Non-OPEC+ supply is growing faster than previously expected and is led by record US crude oil production, which has continued to rise despite the number of drilling rigs being flat or falling compared to this time last year.

OPEC+, led by Saudi Arabia, faces the same oil dilemma of preventing rising US production from undermining the coalition’s efforts to prop up prices. In this context, Paul Sankey of Sankey Research told CNBC after the OPEC Plus meeting last week that high US oil production represents a “big problem” for OPEC Plus.

Sankey added, “The solution for Saudi Arabia may simply be to eliminate high production from outside OPEC Plus by flooding the market with crude oil and thus lowering oil prices to levels below the American profit threshold.”

The Kingdom is believed to have a production capacity of about 11.5 million barrels per day, and is currently producing about 9 million barrels per day. For this reason, Saudi Arabia could increase its oil production by about 2.5 million barrels per day – if it decided to do so – within six months, Sankey estimates.

The site explained that the Saudis flooding the market with oil is not surprising – this plan was followed in 2014 and again in the price war at the beginning of the Covid pandemic in 2020 when WTI prices turned negative. For this reason, Sankey acknowledged that rising US oil production has become a “real problem for OPEC.”

According to the latest data released by the Energy Information Administration on Thursday, US crude oil production hit a new monthly record of 13.236 million barrels per day in September. In a phone call to discuss the energy outlook, Francisco Blanche, head of global commodities and derivatives research at Bank of America, explained, “Growth has not been accompanied by Permian Basin production. We are seeing many shale basins boom.”

The website explained that other producers outside OPEC Plus are working to increase production – including Guyana, Canada and Brazil. Brazil has been invited to join the OPEC+ alliance from January 2024, but South America’s largest oil producer will have no stake and will not participate in the oil production cuts. Analysts have pointed out that the failure to reach a unanimous production cut with all members contributing is a source of concern for the unity of OPEC Plus.

In a weekly note last Friday, Ole Hansen, head of commodity strategy at Saxo Bank, wrote: “With cuts supported only by a handful of producers and no additional cuts from Saudi Arabia, failure to secure a group-wide agreement does not bode well for the unity of… The Group in the future – especially if demand continues to slow, forcing it to take more unpopular and economically challenging decisions.