OPEC+ likely to maintain output in light of Kurdish oil dispute

Ministers representing the OPEC+ alliance will meet on Monday to decide whether the group of 23 oil-exporting states should adjust output, amid global economic uncertainty fueled by rising inflation and a potential banking crisis.

In October, OPEC+, which includes the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, agreed to cut output by 2 million barrels per day (bpd) to a total of 31.22m bpd, despite maintain US output pressure. higher to reduce oil prices. The decision, which helped push Brent near $100 a barrel, was the biggest supply cut by OPEC+ since 2020.

In mid-March, Brent fell sharply to $77.06 per barrel, due to fears of higher inflation as well as the shutdown of Silicon Valley Bank and the near collapse of Credit Suisse. On March 21, Brent fell to $70 amid global economic uncertainty, the lowest level this year.

The Joint Monitoring Committee of Ministers, which will meet almost Monday, has the power to call an emergency meeting of OPEC+ if it thinks a change in production is necessary. But analysts told Al-Monitor that they do not expect the panel to recommend an output adjustment.

Craig Erlam is senior market analyst, UK & EMEA at OANDA. He told Al-Monitor, “The main reason is that we should not expect any change [on Monday] is the outlook extremely bleak at the moment so making big changes doesn’t make sense. The wisest approach is to let the fog clear the situation and analyze it.”

Kurdish dispute

Analysts say the disruption to Kurdish oil trade following a court ruling halting the autonomous region’s oil exports to Turkey is likely to support the committee’s case against downward adjustment.

In a note shared this week, RBC Capital Markets said, “The disruption will be to 450 kb/d of Kurdish exports – following the international arbitration court’s ruling that Baghdad has sole control over the northern pipeline that carries crude to the port of Ceyhan in Turkey. It is also likely to strengthen the monitoring committee’s conviction that no downward adjustment is necessary at this time.”

He continued, “However, since talks are underway between Ankara, Erbil and Baghdad to reach a negotiated settlement on the pipeline and the revenue sharing dispute, the break may be short-lived this.”

On Friday evening, Brent crude oil was still hovering around $ 77 per barrel, but RBC said that if macroeconomic fears return and drop oil, OPEC +, led by Saudi Arabia, considered holding a ministerial meeting outside the cycle to change output and stop prices from falling. free fall. The next ministerial meeting is not scheduled until June.

“If the uptrend continues this week there will be no reason to correct, but we don’t see the group remaining on autopilot until the end of the year if oil descends into another stallion driven by wider macro/rate hike concerns,” RBS added.

Callum Macpherson, head of commodities at Investec, said it would be surprising if OPEC+ decided to cut output in the near future.

“Throughout the first quarter of this year, it looks like the market has been well supplied, but I think there’s a general perception that this will change,” he said. materially — the market is very likely to be undersupplied.”

In its risk assessment of OPEC+ members, RBC said it saw an improvement in the risk rating of Saudi Arabia and Iran as a result of a deal made by China earlier this month that normalized relations between the two long-time enemies. Libya’s risk rating was also lowered, as analysts believe National Oil Corporation chairman Farhat Bengdara has shown he can work with all factions in the war-torn country.

‘Undersupplied territory’

Giovanni Staunovo, commodities analyst at UBS, also believes that the path of least resistance is to keep the production quota unchanged for now.

“Demand concerns from the United States and Europe are offset by the prospect of stronger demand from Asia,” he said. “Oil prices will likely decouple from those factors once the oil market moves into undersupplied territory during the second quarter, allowing prices to move higher.”

Livia Gallarati, senior analyst, oil markets at Energy Aspects, believes that current prices are not at the levels that OPEC+ would like to see, but the recent drop in oil has been caused by factors outside the oil market.

“Physical cuts may soon stabilize sentiment but there is no guarantee that prices will not fall again if the banking contagion spreads and there is a risk that cuts could be misinterpreted as evidence of much worse economic problems or demand weakness, when in fact OPEC+ sees strong demand,” said Gallarati.

She said that if necessary, the coalition government will stop the deal as it has always done.

“In recent years, we have seen the group mobilize to prevent any risk of the curve falling into contango, but we are nowhere near that,” Gallarati said.

Erlam said that the banking crisis is the main factor affecting the oil market at the moment, and that it will need a few weeks or months of calm before the risk of major economic disadvantage decreases.

“That will also be a key factor for the global economy, although China is still an unknown, as is Russian output. It’s going to be a lot of twists and turns this year.”

“It is clear that China wants to increase its influence but if that comes at the expense of those who have Washington, then it does not strike me as a promising path forward, rather an alliance of sanctioned countries and sanctions and more division more together. of the West,” said Erlam.

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