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OPEC+ prepares for market uncertainty with continued 2 million b/d production cut

Published by , Deputy Editor
Oilfield Technology,

Speaking after the recent OPEC+ meeting, Ann-Louise Hittle, Vice President, Macro Oils, at Wood Mackenzie, said “The decision by OPEP+ to continue with its recently agreed 2 million barrels per day (b/d) production cut through the end of 2023 is not a surprise, given the uncertainty in the market over the impact of the 5 December EU Russia crude oil import ban and the G7 price cap. In addition, the producers’ group faces downside risk from the potential for weakening global economic growth and China’s zero Covid policy.”

The outcome fits with Wood Mackenzie’s short-term forecast, which assumed a continuation of the recent cuts. Despite the OPEC+ production cuts, Wood Mackenzie’s forecast shows a balanced market for 2023 with adequate supply. The forecast for 1.8 million b/d of global oil supply growth in 2023 is nearly matched with an expected increase of 2 million b/d for demand for the year.

Hittle said, “Prices are currently weighed down by expectations of slow demand growth, despite the EU oil import ban on Russian crude and the G7 price cap. The adjustment to the EU ban and price cap is likely to support prices temporarily.”

She added that under the EU ban, crude oil exports that go to Europe currently will need to clear into more distant markets, or additional supply will need to be shut in.

“EU nations that import Russian crude oil either by ship or from the Druzhba North pipeline will need to replace those volumes with waterborne imports, increasingly pulling on crude oil exports from the Middle East, West Africa, and US. The crude import ban is followed by a product import ban for the EU starting 5 February. With the distillate market already tight, the product ban could support crude oil prices in Q1 2022,” said Hittle.

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