OPEC+ is in full control both to the downside and to the upside, Bjarne Schieldrop, the Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), said in a report sent to Rigzone on Wednesday.
“OPEC+ will produce more if needed and more if the crude oil price moves too far to the upside,” Schieldrop noted in the report.
“OPEC+ wants a nice price. Sufficiently high – $80 per barrel or more. But not too high either. Not $110-120 per barrel. At least not in 2024,” he added.
In the report, Schieldrop highlighted that Brent crude averaged $82.1 per barrel last year and said “so far this year” it has averaged the same amount.
“For now, it is creating neither inflation nor deflation and is fully neutral as such,” Schieldrop stated in the report.
“If Brent crude moves too much to the upside, then it might start to generate some inflationary impulses, which again could force central banks to maintain high interest rates for longer to slow inflation through slower economic growth,” he added.
“That is of course negative for oil demand growth and OPEC+ does indeed like solid oil demand growth. So, if the oil price moves too much to the upside, then OPEC+ will indeed produce more,” he continued.
Schieldrop pointed out in the report that Saudi Arabia is producing nine million barrels per day versus its “normal 10 million barrels per day”.
“The other core OPEC members are also producing well below capacity. All of them want to produce more and close to normal if they can do so without driving the oil price below $80-85 per barrel,” he said in the report.
“Saudi Arabia would love to produce a normal 10 million barrels per day if it could do so without driving the oil price below $80-85 per barrel,” he added.
Schieldrop noted in the report that the oil market is running a deficit all through Q2-24 if the group sticks to targets.
“While $90 per barrel will be broken, the upside isn’t unlimited as the group will then produce more (maybe later in the year) to prevent inflationary effects, high rates for longer, and damage to global economic growth and oil demand growth,” he added.
The Brent crude oil price closed at $89.35 per barrel on Wednesday and $90.65 per barrel on Thursday. At the time of writing, it is trading at $90.70 per barrel.
The U.S. Energy Information Administration (EIA) projects in its latest short term energy outlook (STEO), which was released on March 12, that OPEC+ crude oil production will average 35.95 million barrels per day in 2024.
This production averaged 38.20 million barrels per day in the first quarter of 2023, 37.50 million barrels per day in the second quarter, 36.25 million barrels per day in the third quarter, 36.34 million barrels per day in the fourth quarter, and 37.07 million barrels per day overall in 2023, according to the STEO.
Saudi Arabia’s production averaged 9.53 million barrels per day last year, the STEO highlighted. The country’s output averaged 10.02 million barrels per day in the first quarter of 2023, 10.18 million barrels per day in the second quarter, 9.02 million barrels per day in the third quarter, and 8.93 million barrels per day in the fourth quarter, the report showed.
In its previous STEO, which was released in February, the EIA forecast that OPEC+ crude oil production would average 36.45 million barrels per day in 2024. That STEO put average OPEC+ crude oil output at 37.08 million barrels per day in 2023. It also put Saudi Arabia’s production average at 9.54 million barrels per day last year.
The EIA’s STEOs did not make a prediction for average Saudi Arabia crude oil production in 2024. They also exclude Iran, Libya, and Venezuela from OPEC+ production figures.
In its latest STEO, the EIA highlighted the extension of OPEC+ crude oil production cuts.
“The OPEC+ voluntary production cuts are an extension of the existing production cuts that were announced on November 30, 2023, and are now extended through the second quarter of 2024 (2Q24),” the EIA said in its March STEO.
“The announcement also included an additional voluntary production cut from Russia,” it added.
“We expect that the extension of the OPEC+ production cuts will tighten global oil supplies in the near-term,” the EIA went on to note in the STEO.
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