In line with the decision they made in October, the OPEC+ group, which cut 2 million barrels in daily oil production as of November, will meet on Sunday to evaluate the latest developments in the market and to determine the amount of production to be applied.
Uncertainties regarding the global economy and demand outlook are expected to be influential in the decision to be made at the meeting.
The fact that the protests against the “zero case” policy implemented by China caused demand concerns in global markets at the beginning of the week, causing sharp decreases in oil prices, strengthens the possibility of the group to cut production.
The de facto leader of the group, Saudi Arabian Energy Minister Abdulaziz bin Salman, also reiterated last week that the current production cut will continue until the end of 2023, following the allegations that the OPEC+ group is planning to increase oil supply, and that they are ready to make further cuts in line with the supply-demand dynamics.
On the other hand, the fact that the meeting is held before the decision of the European Union (EU) to cut off the supply of crude oil by sea from Russia, which will come into force on December 5, and the ceiling price application, increases the uncertainties regarding the possible step of the OPEC+ group.
The international oil price reference benchmark Brent oil, which exceeded the level of 139 dollars on 7 March due to the supply concerns created by the Russia-Ukraine War in the markets, has been trading below 100 dollars since August, as global recession concerns in the markets strengthened and demand concerns regained ground.
At the meeting held in Vienna, the capital of Austria, on October 5, the OPEC+ group decided to reduce oil production by 2 million barrels a day from November to support the falling oil prices due to global recession concerns.
The decision to cut production supported oil prices upwards, adding to the concerns about the already shrinking global oil supply due to the Russia-Ukraine War.
Constantly reiterating its expectation of a decline in oil demand, OPEC recently revised its forecast for the increase in global oil demand downward for this year and next year in its monthly oil market report.
“A major cut could push the price of Brent oil above $90 a barrel”
Anas Alhajji, Managing Partner of the independent research and consulting company Energy Outlook Advisors, said that the 2 million-barrel production cut decision of the OPEC+ group at the previous meeting will remain in effect until the end of next year.
Reminding that the group will meet for the first time on Sunday after the said cut decision, which is expected to be more effective in the future, Alhajji said, “The problem for the OPEC+ group is December and the first quarter of 2023. The current cut is not enough to maintain market stability and cannot prevent oil prices from falling. “The best decision the group can take at the meeting to prevent this is to take additional cuts. The less effective option would be to stay at the current level,” he said. Evaluating the possible results of the meeting, Alhajji said that the amount of cuts to be made will have different reflections on the prices.
“Maintaining the current situation may cause oil prices to fall by more than $10 per barrel. A partial cut will keep current prices. However, a major cut may increase the price of Brent oil above $90 a barrel, especially for the first quarter,” Alhajji said.
Pointing out that various factors other than the developments in China, the world’s largest crude oil importer, are driving oil prices down, Alhajji used the following statements:
“The Biden administration started supplying 15 million barrels of oil from strategic oil reserves to the market on Thursday last week. With the appreciation of the US dollar, the costs of oil importing countries that purchase oil in non-dollar currencies skyrocket, which negatively affects global oil demand growth. It generally decreases, but current conditions are further fueling this situation. Recession expectations in 2023 are also putting pressure on oil prices.”
“Market uncertainties may put pressure on the continuation of current cuts”
Carole Nakhle, Chief Executive of UK-based consulting firm Crystol Energy, said three possibilities were discussed regarding the outcome of Sunday’s meeting. Nakle stated that these possibilities are to increase production, to cut production or to maintain the current level, as expected:
“Given the market conditions, the first scenario is not convincing. Oil prices are currently trading at levels before the October meeting, when the group announced the 2 million-barrel cut. Considering this factor, the current production level for now, given the uncertain consequences of EU sanctions and the price cap. The last scenario, which argues that we will stick to it, gains weight.”
Pointing out that oil prices are affected by the steps taken by the OPEC+ group, Nakhle said that there are other forces that are equally effective in the markets and that these should also be taken into account.