OPEC is now in control of oil prices

[dan_s]

From Bloomberg 4-13-2023 with my comments in blue

Oil supply cuts agreed by OPEC+ nations last week are putting global markets on track for a hefty supply deficit that will widen as the year progresses, the latest data from the group indicate.

World oil markets may be under supplied by about 2 million barrels a day in the fourth quarter of 2023 as a result of cutbacks announced by Saudi Arabia and its partners, according to figures in a report from the Organization of Petroleum Exporting Countries.

Riyadh and its partners shocked crude traders and sent prices rallying with the supply reductions announced on April 2. OPEC officials said the move was necessary to deter speculators from making unwarranted wagers against oil, but the International Energy Agency, which advises consuming nations, called the decision a “bad surprise.” < MY TAKE: Saudi Arabia's goals were (a) send a clear message that they will do whatever is necessary to keep Brent over $85/bbl, (b) crush the "paper traders" that were shorting Brent and WTI futures and (c) send a clear message to Joe Biden's Team of Idiots that OPEC is now in total control of the world's oil price.

Oil futures have climbed to $87 a barrel in London since the cuts were revealed. That has revived fears over inflation and global economic growth, while also shoring up revenues for the 23 members of the OPEC+ coalition. Some forecasters think the tighter outlook could herald the return of $100 oil.

The report on Thursday from OPEC’s Vienna-based research department provides some justification for the curbs, which should whittle down the supply surplus projected for this quarter.

Oil inventories are above their five-year average, and current output from OPEC’s 13 members is about 300,000 barrels a day more than needed from April through June, at 28.8 million barrels a day. < OECD Petroleum inventories are way below the 5-year average when measured on Days of Supply.

But in the second half of the year world markets stand to tighten considerably. OPEC already expected a supply deficit to emerge over the summer, and the newly unveiled cuts will make the shortfall even more pronounced.

While OPEC+ described the cutbacks as a “precautionary measure aimed at supporting the stability of the market,” the group continues to forecast a substantial jump in global oil demand this year. Consumption will climb by 2.3 million barrels a day, surpassing pre-pandemic levels to reach a record 101.89 million a day for the year, it projects. < Q4 oil demand could spike to 104 million barrels a day.

In practice, OPEC’s output reductions are expected to be smaller than advertised as some members are already pumping below their target levels. But even if only the group’s core Gulf states were to implement the deal, OPEC output should drop to about 28 million barrels a day — roughly 1.6 million a day less than the organization thinks will be needed in the third quarter, and at least 2 million less than is required in the fourth.

Demand for the group’s crude is projected to reach 30.3 million barrels a day in the last three months of the year, according to the report. The shortfall could be tempered considerably because of Russia, a key member of the wider OPEC+ coalition, which is separately slashing production in response to sanctions over the war in Ukraine.

OPEC’s calculations assume that Russian supplies will slump by 750,000 barrels a day on average this year, and suffer a sharp plunge this quarter. That’s a much larger drop than the 500,000-barrel-a-day reduction recently pledged by Moscow. Russian exports have proved stubbornly resilient despite promises to punch back against international censure over the invasion, though a slow-down in the latest shipping data suggests sanctions may be starting to bite.

The OPEC+ alliance is scheduled to review output policy for the second half of the year at a meeting in early June.

[dan_s]

Daniel Payne: OPEC cuts and oil prices spike; Will U.S. respond by producing more? Waco Tribune-Herald.
OPEC announce cuts of more than a million barrels daily starting in May, oil prices immediately jumped 5 percent. A week later, U.S. gasoline prices are up more than a dime a gallon, and the summer driving season is likely to send prices at the pump higher. Saudi Arabia, the United Arab Emirates and Iraq are among countries dialing back production, while Russia said it would continue its present 500,000-barrel-per-day cut through at least the end of the year.
Jeff Eshelman, the president and CEO of the Independent Petroleum Association of America, said OPEC’s decision “emphasizes the importance of supporting U.S. oil production, with our federal government’s policies and with investment from the financial community.” Eshelman noted that “producing oil is not like turning on a water faucet.” “It takes months to get production back up,” he said. “If U.S. producers want to produce more oil, it takes six to nine months, minimum, to ramp up. The timeline for increasing production on federal lands is even longer because of a lengthy bureaucratic permitting process.”