March 28, 2024

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OPEC deals cautiously with rising pessimistic news

OPEC deals cautiously with rising pessimistic news

This week there was finally some good news for oil consumers. Both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency have revised downward demand forecasts, indicating that prices finally have a significant downside potential. But OPEC is ready to change course. “Strict new lockdown measures amid rising COVID cases in China have led to a downward revision of our outlook for global oil demand for the second quarter of 22 for the full year,” the International Energy Agency wrote in its latest report. oil market report this week.

The agency also noted that OECD members consumed less oil than previously expected, prompting the International Energy Agency to revise its demand forecast for the year by 260,000 barrels per day from a total of 99.4 million barrels per day. Last month. .

Meanwhile, the agency indicated stable and significant production additions during the first quarter of the year, stressing that these additions were led by non-OPEC producers. When non-OPEC producers push production increases, it pays to watch OPEC more closely than usual for its response.

That answer has yet to come, but the cartel itself is also reviewing its demand forecast for the year. Much more reviews from the IEA.

In the latest version of its monthly oil market report, OPEC said global oil demand would be 480,000 barrels per day lower than previously expected. poster Appointment Slowing economic growth due to the war in Ukraine as one reason for the review, and the Covid-related shutdown in China as another.

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On the presentation side, the IEA appears to be fairly quiet. After sounding the alarm that 3 million barrels per day of Russian oil exports could be lost due to Western sanctions, the agency has now announced the coordinated release of a total of 240 million barrels of crude, of which 180 million barrels per day. It will be issued by the United States. Which would offset the impact of the loss of Russian supplies.

The IEA seems to assume that the loss of Russian supplies will be temporary, just as the effect of freeing up stocks will last as long as the release lasts, if not less. And OPEC may provide a nasty surprise for members of the International Energy Agency wanting to draw on their own strategic reserves to normalize benchmark prices.

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Earlier this month, only OPEC met with representatives of the European Union tell them They will not step in to help if Russian oil exports are completely shut down.

He added, “It is possible that we will witness a loss of more than 7 million barrels per day in Russian exports of oil and other liquids as a result of current and future sanctions or other voluntary measures. Given the current demand forecast, it will be almost impossible to replace this.” “.

However, with the revised demand forecast, only OPEC can decide to review its own production plans as well. With millions of Russian oil out of the (official) picture and few chances of Iranian barrels coming back at this point, it is up to OPEC and the United States to fill the void. Yes, that’s right, they want it.

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American producers seem to be preparing for the idea of ​​ramping up production, with prices so high that their profit margins are wide enough. Encourage More excavations. Meanwhile, OPEC only boosted its production 67,000 barrels per day Last month. It was because some OPEC members saw their oil production fall rather than grow, but Saudi Arabia drastically reduced its share of production.

At the same time, OPEC revised its forecast for US oil production this year upwards, and history shows that when US oil production grows, OPEC is not a happy cartel and is taking steps to counter this growth. Now, with this output growth forecast coupled with a slowing demand growth outlook, OPEC’s reaction may only be a matter of time.

As for the nature of the possible reaction, it is not difficult to guess. At the moment, OPEC is selling its oil at prices last seen years ago. And buyers have few alternatives amid Western sanctions on Russia and US sanctions on Venezuela and Iran. It is a seller’s market.

However, news of the resurgence of the Covid virus in China has raised suspicions that the market is about to change direction. After all, China is the world’s largest importer in terms of absolute volume and imports already down significantly to close. If China needs less oil, less oil must be supplied.

Europe appears to be shaping up to be a larger customer of OPEC oil at the moment, but that will be temporary as the EU tries to wean itself off Russian hydrocarbons by replacing them with hydrocarbons from elsewhere.

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Europe is not a long-term growth market for OPEC oil, and as such, frankly, it is not a major market for the cartel. This is especially true for OPEC producers, which have the additional ability to significantly increase their production.

Therefore, if the bearish outlook for oil continues to intensify, depending on how the coronavirus spreads in China and what the European Union does with Russian oil, we could see OPEC regressing the production growth agreement with Russia and the rest of the countries. OPEC +. partners before this year. End.

By Irina Slough for Oilprice.com

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