BAKU, Azerbaijan, October 4. OPEC+ is expected to make substantial output cuts, Trend reports with reference to Fitch Solutions.
“Of the 10 OPEC members participating in the OPEC+ production cut, only five have capacity to raise output from current levels. These five combined are currently set to add 889,000b/d on an annual average basis next year, representing over 40 percent of global growth. However, this growth is now under threat from renewed production cuts by the group. The group, which is set to meet on October 5, is reportedly mulling a collective cut in excess of 1mn b/d, equal to over 1 percent of global supply. Given that half of the OPEC members, as well as Russia, are already producing below their quotas and are facing further, involuntary production declines, the impact of any such cut will depend on what reference level is used to calculate it and how it is pro-rated across the group,” reads the latest report from Fitch Solutions.
The company experts believe that an additional voluntary cut by Saudi Arabia (and other Gulf states) would be particularly bullish for prices.
“We expect a substantial cut to be made, which will not only help to tighten the physical market balance, but sends an important signal that the group will continue prioritising prices over production. At the very least, this should put a floor under Brent at current levels and may set the stage for a near-term rally. Among non-participating OPEC members, the risks to output are also weighted to the downside. Libyan oil production has recovered to around peak capacity levels of 1.2mn b/d, after the force majeure on oilfields and export terminals was lifted in July. However, the political environment remains highly unstable and renewed production outages are likely.”
Meanwhile in Iran, forecast production growth hinges on the signing of the nuclear deal, which now looks likely to be delayed into 2023, according to Fitch Solutions.
“With the Republicans poised to gain control of the House in the US midterms in November, Congressional opposition to the deal may be expected to rise, which could lead to further delays next year.”
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