BAKU, Azerbaijan, April 5. The decision of OPEC+ members to reduce the oil output by 1.2 million barrels per day can cause deficit in the market in the second half of 2023, Dmitry Marinchenko, Senior Director at Fitch Ratings said, Trend reports.
The deficit will be in particular driven by the rebound of oil demand in China, the expert explained. He pointed out that this step will also have an upward pressure on oil prices.
"We believe that the market was in a moderate surplus in 1Q23 with OECD commercial inventories increasing by 32 million tonnes in January and a further 10 million tonnes in February. The decision on production cuts increases the likelihood of the market switching into deficit this year as demand will increase by 2MMbpd in 2023, according to the US EIA’s estimates, mostly because of China reopening, which will account for about half of demand growth,” he said.
Marinchenko expects that the growing output in in North and South America, which may add 1.7 million barrels per day (IEA estimates) could offset the rising demand.
“While Russia may struggle to increase production because of the sanctions, Saudi Arabia, the UAE and Kuwait can fairly quickly adjust their supplies. In 1Q23, spare capacity in the Middle East was estimated at 3.25MMbpd, according to the US EIA, which will increase to almost 4.5MMbpd following the recently announced cuts,” he noted.
Fitch expects Brent prices to stand at $85 per barrel on average in 2023, before going down.
“The latest decision does not have any immediate impact on our price assumptions. However, we believe there is now a greater upside to our oil short-term price assumption,” Marinchenko explained.
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