BAKU, Azerbaijan, June 2. OPEC production cuts will end in September adding a high likelihood of increased output from key members holding spare capacities, Trend reports with reference to Fitch Solutions.
“While not an even prospect across the group, we expect output to rise once production cuts officially come to an end. The Middle East members are only ones with substantial capacity available and their continued investment in upstream expansion remains key element of our view for output to help address the market tightness,” reads the report released by Fitch Solutions.
However, the company analysts say there is risk that OPEC does
not open up the taps come October as their current view is that
markets are
balanced and that high prices are a result of the Ukraine conflict
and sentiment fears of supply disruptions.
In their view, OPEC sees the increase in exporters as unlikely to help curb high oil prices. Another risk to OPEC production increases is the return of Iranian barrels. Our views for a US-Iran nuclear deal in 2022 remains a key element of our thesis for prices to decline from current levels. The substantial impact from returning Iranian barrels is expected to have a larger impact in 2023. Our Country Risk team sees a deal by September but this view remains subject to uncertainty as negotiations remain deadlocked. The bulk of global spare capacity is held by OPEC, with MENA holding around 4.8mn b/d at present, or 3.6mn b/d, excluding barrels under sanctions,” Fitch Solutions says.
The report reveals that the OPEC+ deal, deepening bilateral energy ties with Russia and ongoing uncertainties over the future market balance are limiting their appetite to act to reduce oil prices.
“Should OPEC view the return of Iran to oil markets as moving markets to oversupply it could continue with curbs to accommodate the increased in supply. Contrast this the strongly likelihood of OPEC action should oil prices climb higher in the near-term, to preserve the global economy and prevent a demand destruction, all adding to high level uncertainty and risk to OPEC’s production growth outlook,” says the report.
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