One prediction sees oil at over $100, but another warns of a plunge to below $70: File Image/Pixabay
A new deal from the Organization of the Petroleum Exporting Countries (OPEC) combined with a vow from its de facto leader Saudi Arabia to further cut output caused a modest increase in oil prices on Monday.
Brent settled up 58 cents at $76.71 per barrel, while West Texas Intermediate gained by 41 cents to $72.15.
OPEC and producers including Russia vowed to limit supply into 2024 in order to boost lacklustre prices, and the Saudis pledged to cut production by a further 1 million barrels per day (bpd) from July to 9 million bpd, in order to counter economic headwinds.
Phil Flynn, senior market analyst, Price Futures Group Inc.
The market is still trying to assess the impact
Prince Abdulaziz bin Salman, energy minister for the Saudis, told media, “It was just our sensibility, if you will call it, that the environment was not sufficiently allowing confidence to be there, so taking a precautionary measure tends to put you on the safe side.
“And it is part of the typical rhythm that we have installed in OPEC, which is being proactive, being pre-emptive,”
Phil Flynn, senior market analyst at Price Futures Group Inc., said of Monday's oil trading, “The market is still trying to assess the impact of what the Saudi production cut actually means; oil seems to be taking the news as very bullish, and it is.”
Goldman Sachs agreed that the output deal was “moderately bullish” for oil and could boost December Brent prices by between $1 and $6 per barrel, depending on how long the Saudis maintain their reduced production rate.
For his part, Bob McNally, president of Rapidan Energy, told CNBC in an email that the output reductions “once again demonstrated that Saudi Arabia is willing to act unilaterally to stabilize oil prices,” and he added that “We see large global deficits materializing in the second half of 2023 and crude prices exceeding $100 next year.”
Helima Croft, managing director at RBC Capital Markets, pointed out that “The fact [Saudi Arabia] is willing to shoulder [the cuts] alone adds to the credibility of the cut and signals real barrels coming off the market.”
Still, some observers lamented the state of the market overall regardless of cuts, case in point: Ed Morse, global head of commodities research and managing director at Citi, expressed disappointment in demand in China, the European Union and the U.S., and he said, “We have a potential for supply to be a lot bigger than where demand growth is going.
“There is no guarantee that [oil prices] won’t go below $70.”