CEO Morning Brief

Saudi Output Cut Unlikely to Lift Oil Prices to High US$80s-low US$90s, Citi Says

Publish date: Wed, 07 Jun 2023, 08:46 AM
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TheEdge CEO Morning Brief

(June 6): Top crude exporter Saudi Arabia's one million barrel per day (bpd) oil output cut is unlikely to underpin a "sustainable price increase" into the high US$80s-low US$90s with weak fundamentals pointing to lower prices by year-end, Citi analysts said in a note on Tuesday (June 6).

Brent gained as much as US$2.60 on Monday after Saudi Arabia, Opec's de facto leader, said its output would drop by 1 million bpd to 9 million bpd in July.

However, oil prices came off those gains to edge lower on Tuesday.

"We see average quarterly prices fairly range-bound for the year, averaging US$81 for Brent in both H1 and H2 but with the potential to range between US$72 and US$90," Citi said in the note.

Citi analysts cited factors such as weaker demand and stronger non-Opec supply by year-end, potential recessions in the US and Europe, and lower growth in China which could see prices end up lower rather than higher this year and in 2024.

Opec+, which groups the Organization of the Petroleum Exporting Countries and allies led by Russia, currently has cuts of 3.66 million bpd in place, amounting to 3.6% of global demand, to limit supply into 2024 as the group seeks to boost flagging oil prices.

But "it would take surprisingly better coordinated action among Opec+ producers to tighten markets... The likelihood that Saudi Arabia would tackle this on its own on a sustained basis is quite low," Citi said.

Citi said if Saudi Arabia kept production at nine million bpd throughout the third quarter of this year, the deficit during the period would widen to above one million bpd and leave global oil markets finely balanced in 2023 — however, markets would still face a large surplus in 2024.

Other analysts said a global shortfall in supply is set to deepen in the third quarter following the kingdom's output cuts and could push brent towards US$100 a barrel by year-end.

Source: TheEdge - 7 Jun 2023

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