Oil prices slumped on Monday on reports that the Organisation of Petroleum Exporting Countries (OPEC) was negotiating an output increase by as much as 500,000 barrels per day when the group meets on December 4.
Prices, which were already down on the day, fell more than 5 per cent, with Nigeria’s benchmark, Brent oil, selling for $86 per barrel in the evening, while the West Texas International (WTI) slumped to $78.
Last month, OPEC+ unexpectedly decided to reduce output targets sharply and it would seem unusual for the group to increase production at a time of declining prices and concern about the economic outlook.
Physical crude markets have weakened in recent days reflecting softer demand from China and Europe.
The negative impact on oil prices happened after the Wall Street Journal (WSJ) reported that Saudi Arabia and other OPEC oil producers were discussing an output increase, quoting the group’s delegates.
While the move could help heal a rift with United States and keep energy flowing amid new attempts to blunt Russia’s oil industry over the Ukraine war, it would also mean more pressure on Nigeria to up its crude production which has fallen by as much as 40 per cent in recent months.
By OPEC data , Nigeria was only able to produce 1.014 million barrels per day of its about 1.8 million bpd in October. The country has blamed massive oil theft for its inability to meet the OPEC allocation.
The half a million barrels increase is expected to come a day before the European Union (EU) is set to impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking Moscow’s petroleum supplies off the market.
Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting of the OPEC and their Russia-led allies, a group known collectively as OPEC+.
But it is an unusual time for OPEC+ to consider a production increase, with global oil prices falling more than 10 per cent since the first week of November since production increases normally cause prices to fall, while cuts lead prices higher.
Ostensibly, delegates said, a production increase would be in response to expectations that oil consumption will rise in the winter, as it normally does the WSJ report added.
The plan by Saudi Arabia to lead the move to increase production is seen as part of the politics of the oil economy as the United States has been unhappy with the defacto OPEC leader’s alignment with other members to reduce output.
However, what appears to be a move to reciprocate the US action, is coming days after the Joe Biden administration called for immunity for Saudi Crown Prince, Mohammed bin Salman in his case involving late journalist, Jamal Khashoggi.
Oil demand is expected to increase by 1.69 million barrels a day to 101.3 million barrels a day in the first quarter next year, compared with the average level in 2022.
Meanwhile, Goldman Sachs has cut its oil price forecast by $10 to $100 per barrel, citing lockdowns in China that would dampen demand for the commodity.
The investment bank’s analysts also noted the increased exports of Russian oil before the European Union embargo goes into effect next month as another reason for the forecast revision, according to ForexLive.
The development shows how much the oil price forecast context has changed this year in Goldman’s forecasts from January, when the bank warned that Brent could top $100 per barrel at some point in 2022.
That happened perhaps earlier than many have expected. Still, after that over-$100 peak, crude oil prices have fallen and stayed below the three-digit threshold, even though many argue that it’s a matter of time before they rebound above $100 again.
Goldman is one of the bullish forecasters, with its analysts saying earlier this month that Brent crude could return to above $100 sooner than previously thought. In fact, the firm said that Brent could breach $125 per barrel next year
Again, the main reasons for the forecast were Chinese Covid policies and Russian oil supply, only in that forecast, the analysts cited the prospect of China relaxing its zero-Covid approach and the prospect of a steep drop in Russian oil exports following the EU embargo.
Some analysts note the OPEC+ production cut, will reduce the globally available supply of crude oil in the coming months, while demand for non-Russian oil is expected to increase amid the embargo.
According to the International Energy Forum (IEF), a Saudi-based energy think-tank, Russian oil supply could drop by between 1 and 3 million barrels daily because of the embargo, which will undoubtedly have an impact on prices.
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