OPEC+ Ministers Have Near Clean Sheet for September Policy

OPEC+ ministers meet today and, for the first time in over a year, there is no pre-agreed target increase to rubberstamp, analysts at Standard Chartered have highlighted.

“The early 2020 output target cuts were fully reversed with the August loading programs,” the analysts stated in a report sent to Rigzone on Wednesday.

“Ministers therefore have a nearly clean sheet in considering output policy from September onwards,” the analysts added.

In the report, the analysts noted that there are several “key issues” from an OPEC perspective, adding that ministers will want to keep Russia within the policy process to ensure longer-term cooperation, “but will also not want to give key consuming countries the impression that they are holding back supplies unjustifiably”.

“In our view, ministers have over the past month become more concerned about the downside to prices than the upside due to increased recession concerns, poor data from China, and the sharp erosion of price gains made after Russia’s invasion of Ukraine,” the analysts said in the report.

“Brent prices are currently just $3 per barrel higher than the day before the invasion, after having moved $40 per barrel higher at one point,” the analysts added.

Standard Chartered analysts outlined in the report that the company’s model shows “significant” supply gaps in 2024 and beyond, which they said “should tilt price pressures sharply to the upside”. The outlook for 2023 appears more downbeat, however, according to the analysts.

“We think OPEC needs to keep supply under control and target lower inventories to keep prices above $90 per barrel in 2023,” the analysts noted in the report.

“We forecast demand growth of 1.67 million barrels per day in 2023, with significant downside risk. Given worsening near-term fundamentals and deteriorating oil-market sentiment, we think ministers would prefer to defend the downside and not increase output immediately,” the analysts added.

“OPEC output has increased 2.2 million barrels per day year on year, while we estimate that Q3 global demand is 0.1 million barrels per day lower year on year. The OPEC+ meeting is therefore likely to focus on steering a path between doing as little as possible to increase actual output because balances are weak, while still wanting to appear responsive to consumer concerns,” the analysts continued.

At OPEC+’s previous meeting, which was held on June 30, the group reconfirmed its decision to increase its monthly overall production by 0.648 million barrels per day in August. According to a production table accompanying news of the results of OPEC+’s latest meeting, which was posted on OPEC’s website, the countries with the joint highest “required production” this month are Saudi Arabia and Russia, with 11.004 million barrels per day. Iraq is next on the list with 4.651 million barrels per day and Kuwait comes after with 2.811 million barrels per day.

To contact the author, email andreas.exarheas@rigzone.com