BAKU, Azerbaijan, June 8. The latest OPEC+ decision to curb the output will positively affect oil companies' development plans, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.
He noted that on the economic front, the main issue is that we could have a rather tight oil market in the second half of 2023 and in 2024.
“OPEC+ (23 countries) decided on 4 June to maintain its global production level in the second half of this year (but Saudi Arabia announced a 1 million barrels per day - Mb/d - cut in July 2023 and, perhaps, beyond the next month) and to lower it in 2024. World oil demand is on the rise and could reach 102 Mb/d in 2023, according to the Paris-based International Energy Agency (IEA). It would be a record, the previous one dating back to 2019 just before the Covid-19 pandemics. The IEA also estimates that world oil supply will not increase as much as demand during this year, which could lead to a rise in oil prices in the coming months. These decisions clearly show that OPEC+ countries intend to push oil prices up. They would be more comfortable with prices above $80 per barrel. On Friday 2 June in the evening, just before the latest OPEC+ ministerial meeting, the price of Brent (August 2023 contract) in London was $76.13/b,” said the expert.
Perrin believes that on the geopolitical front the willingness of OPEC+ to tighten the oil market is not good news for the Western countries which are sanctioning Russia.
“It does not mean that OPEC+ wants to support Russia within the war in Ukraine. These countries are only trying to push up oil prices for economic reasons but this strategy can have some geopolitical impacts. The value of Russia's oil exports (crude and refined products) has sharply fallen since the beginning of 2022 due to the fall in oil prices, which began in the Summer of last year, and to Western sanctions including ceilings on the prices of Russian crude oil and refined products. The G7, the European Union and Australia have imposed these ceilings in December 2022 (for crude oil) and in February 2023 (two ceilings for the prices of oil products),” he explained.
The analyst warned that Western countries will not be very happy of course with these decisions from OPEC+.
“It will contribute to increase the strategic importance of non-OPEC+ oil producing countries, especially those which are able to increase their production in the near-term and the mid-term. The list includes the U.S., Canada, Brazil, Guyana and Norway. The tightening of the world oil market and its consequences on oil prices could have a favorable impact on oil companies' development plans. On the other hand, there remains a lot of uncertainties weighing on the oil market with the war in Ukraine, some not very good indicators for the Chinese economy, the world economic slowdown in 2023, the risk of recession and the policies of the central banks which are pushing interest rates up in order to fight inflation,” he added.
Perrin noted that it is one thing for OPEC+ countries to say that they will produce at a certain level and another thing for them to be willing and/or able to respect this commitment.
“When Saudi Arabia announces that it will lower its production by 1 Mb/d next month nobody is thinking that it will not be the case. But some other OPEC+ countries are not able to produce at the level of their allocations because of difficult internal political situations, attacks on oil facilities, underinvestment and bad management of the oil sector,” he concluded.
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