BAKU, Azerbaijan, October 6. OPEC+ won’t be able to deliver on full headline cut, Senior Vice President, Rystad Energy, Jorge Leon said, Trend reports.
“OPEC+ announced a 2 million bpd reduction in crude supply for November 2022. We believe that the group will not be able to deliver on the full headline cut, but instead has scope to deliver 1.2 million bpd of effective cuts as 14 out of the 23 member countries (accounting for 39 percent of the group’s production in September) are currently underproducing so that the new quota will not be binding. For example, Russian production is around 9.7 million bpd but their new quota is 10.5 million bpd,” he said.
Jorge Leon believes that the estimated 1.2 million bpd of effective output cut for November 2022 will be mainly shouldered by Saudi Arabia (-520,000 bpd), Iraq (-220,000 bpd), the UAE (-150,000 bpd) and Kuwait (-135,000 bpd). Kazakhstan, Algeria, Oman, Gabon, and South Sudan will also contribute.
“In the official press release, the group also outlined two non-volume shifts in policy that will also be quite impactful on the oil market. Firstly, the Declaration of Cooperation was extended until the end of 2023. This adds a year of potential sturdy oil price floor amid what OPEC+ describes as “uncertain” global economic outlook and the need for long-term guidance in the oil market.
Another important detail is that the 23-member group will only meet every 6 months, signaling that the new target production level of 40.1 will not be tinkered with on a month-to-month basis. We see OPEC+ going for a “sell more for less” strategy amid weaker-than-expected demand as recession weighs and as supply ticks up in the US,” noted the expert.
Leon pointed out that the announced OPEC+ cuts, even if executed at a 60 percent level would push inventory draws into bullish territory.
“We believe that the price impact of the announced measures will be significant. By December this year Brent would reach over 100 USD per barrel, up from our earlier call for 89 USD per barrel.”
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