OPEC+ is widely expected to stick to its latest target of reducing oil production by 2 million bbl/d when it meets on Sunday, but some analysts believe that crude prices could fall if the group does not make further cuts.
OPEC and allies led by Russia, a group known as OPEC+, has switched its planned in-person meeting in Vienna on Dec. 4 to a virtual one, which sources in the group say signals the likelihood of it leaving policy unchanged.
The group agreed in early October to cut its oil production target by 2 million bbl/d from November until the end of 2023. Given production restraints on some members of the alliance, the actual cut the group is expected to deliver is closer to between 1 million and 1.1 million bbl/d.
OPEC+, sources told Reuters, now wants to assess the impact of a looming Russian oil-price cap on the market and get a clearer picture of the oil demand outlook in China, the world's top crude importer, where an easing of stringent COVID-19 restrictions is expected after unprecedented demonstrations.
Some analysts, however, are not ruling out a surprise, and warn that with the current oversupply in the market, OPEC+ risks a collapse in the oil price if it doesn't curb its output targets further at the meeting.
"A further cut in production cannot ... be ruled out," PVM Oil analyst Stephen Brennock said. "Failure to do so risks sparking another selling frenzy," he added, without saying how low he thought prices could go.
Brent crude prices, which hit a 14-year high above $139/bbl after Russia's invasion of Ukraine, were trading around $88/bbl on Thursday, staging a modest recovery from near one-year lows close to $80/bbl hit earlier in the week.
China's economy squeezing COVID-19 restrictions and the European Union's failure to agree a level at which to cap Russian oil prices have been weighing on the market, with analysts at ING pointing to the recent weakness as a reason why further supply cuts "cannot be ruled out".
Amrita Sen, co-founder of consultancy Energy Aspects, told bank Jefferies that she did not expect OPEC+ to change tack yet.
Energy Aspects expects OPEC+ to return some barrels to the market after the second quarter of next year in order to balance supply and demand.
UBS analyst Giovanni Staunovo said that while a lack of clarity on Russian supplies may prompt OPEC+ to rollover its current quotas, weaker Chinese demand and the potential for new releases from the U.S. strategic petroleum reserve (SPR) may prompt the group to cut further.
Recommended Reading
Gulfport Plans Liquids-rich Program After ‘Strong’ Ohio Oil Tests
2024-05-01 - Appalachia gas producer Gulfport Energy continues to report “strong oil production” from a two-well Hendershot pad drilled in eastern Ohio last year. Gulfport plans to develop additional liquids-rich opportunities this year as natural gas prices hover near record lows.
Chevron CEO: Permian, D-J Basin Production Fuels US Output Growth
2024-04-29 - Chevron continues to prioritize Permian Basin investment for new production and is seeing D-J Basin growth after closing its $6.3 billion acquisition of PDC Energy last year, CEO Mike Wirth said.
Novo II Reloads, Aims for Delaware Deals After $1.5B Exit Last Year
2024-04-24 - After Novo I sold its Delaware Basin position for $1.5 billion last year, Novo Oil & Gas II is reloading with EnCap backing and aiming for more Delaware deals.
CEO Darren Woods: What’s Driving Permian M&A for Exxon, Other E&Ps
2024-03-18 - Since acquiring XTO for $36 billion in 2010, Exxon Mobil has gotten better at drilling unconventional shale plays. But it needed Pioneer’s high-quality acreage to keep running in the Permian Basin, CEO Darren Woods said at CERAWeek by S&P Global.
Enverus: 1Q Upstream Deals Hit $51B, but Consolidation is Slowing
2024-04-23 - Oil and gas dealmaking continued at a high clip in the first quarter, especially in the Permian Basin. But a thinning list of potential takeout targets, and an invigorated Federal Trade Commission, are chilling the red-hot M&A market.