$100 oil to tighter markets: Analysts predict following OPEC+ shock cut 2023

The market was stunned by the Organization of Petroleum Exporting Countries and its allies’ decision to reduce oil production, considering Saudi Arabia’s previous statements that it would maintain production levels. The decision has reignited concerns over inflationary pressures, heightening fears that rising prices and aggressive monetary tightening by central banks might push the global economy into recession.

Under present market conditions, the White House has condemned the OPEC+ move as ill-advised and underlined that the United States will cooperate with producers and consumers to moderate gasoline costs for Americans.

The following is what analysts are saying about the sudden shift in OPEC+ production:

Group Goldman Sachs Inc.

Analysts like as Daan Struyven and Callum Bruce opined, “OPEC+’s price power relative to the past is extremely strong.” “Today’s unexpected price reduction is consistent with their new policy of acting preemptively because they can without suffering large market share losses.”

This, along with the prolongation of Russian production restrictions, prompted the Wall Street titan to increase its Brent oil price projection for December this year from $90 to $95 per barrel, and from $80 to $100 per barrel for December 2024.

Goldman said that, unlike during the previous OPEC+ cut in October, the trend for global oil demand remains favorable due to a robust rebound in China and stable refining margins.

The Bank of America Corporation.

“Any unexpected 1 million barrel per day shift in supply or demand circumstances over the course of a year may have a $20 to $25 impact per barrel,” said Francisco Blanch, director of commodity and derivatives research at Bank of America.

“OPEC no longer fears a large US shale oil supply reaction if Brent crude oil prices trade over $80 per barrel,” he added. “Thus, decreasing quantities to drive up oil prices does not pose the same concerns as it did five years ago.”

Given that OPEC has traditionally failed to completely implement agreed-upon cutbacks, it is uncertain how much of the planned cuts would materialize in real volume reductions, he added. BofA maintains its second-half Brent price prediction of above $90 per barrel.

The company Citigroup Inc.

Citi analysts included Ed Morse and Francesco Martoccio stated, “OPEC+ restarted its previously abandoned resolve to become the ‘central bankers’ of oil.”

“With extremely low managed money positioning, low open interest, and strong volatility, the markets may anticipate a price overshoot, just as Fed tightening and financial upheaval caused prices to fall far more than balances justified two weeks ago.”

RBC Capital Markets LLC

According to experts at RBC, including Helima Croft and Christopher Louney, the unexpected cut by OPEC+ might result in a decrease of nearly 700,000 barrels per day, despite the fact that the headline number is approximately 1.65 million barrels per day.

Yet, the decision might be interpreted as an indication that Saudi Arabia and its OPEC colleagues would attempt to prevent more global selloffs. The Saudis have conveyed obvious worries about the Federal Reserve’s aggressive actions, macroeconomic uncertainty, and what has been perceived as an excessively pessimistic market bias, they added.

ANZ Holdings Group Ltd.

After these efforts, the possibility of reaching $100 by the end of the year has “definitely improved,” according to Daniel Hynes, senior commodity analyst at ANZ, speaking on Bloomberg Television.

He stated, “Like the rest of the market, I was rather astonished by the move.” This policy sends a rather clear message to the market that the government intends to support pricing.

The Commonwealth Bank of Australia, Ltd.

According to Vivek Dhar, head of mining and energy commodities research at Commonwealth Bank of Australia, the planned cutbacks from OPEC+ will equal to around 1.1% of world supply in the next two months and 1.6% of global production in the second half of this year.

He noted that the eight nations seeking to reduce output have the capacity to do so. Dhar stated, “Thus, a daily production rate of above one million barrels is a possibility.” Consumers should pay attention to these reductions since they are achievable.

Skandinaviska Enskilda Banken AB

According to Bjarne Schieldrop, the chief commodities analyst at SEB, it is “simple to reduce when there is less fear of losing market share to US shale oil as its growth slows.” “When US shale oil production declines, OPEC+ will gain more market power, and oil prices will rise,” as a result of dwindling US shale oil production.

If global jet fuel demand recovers, the price of Brent will return to $100 per barrel more quickly due to the reductions, he added.

“We have previously maintained that OPEC has a great deal of untapped capacity for additional production reduction,” Schieldrop explained. “This is true even after the most recent cutbacks. As a result, downside price risk is restricted.”

Vanda Perceptions

According to Vandana Hari, Singapore-based founder of oil consultancy firm Vanda Insights, “the move has the potential to drive the market into a deficit in the second quarter, contrary to prior projections of a surplus.”

“Higher prices may reduce some crude oil demand and increase the inflation that central banks are attempting to control, so increasing the likelihood of a recession,” she added.

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