Wednesday , February 1 2023

OPEC + is not enough to get rid of the oil market



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If OPEC + aims to increase oil prices, the contract is clearly unsuccessful.

OPEC + has revealed a way to save oil prices from another deep depression. WTI is currently $ 40, Brent is $ 50, and is 15 months low. Even though the waterfall producers now face a low-level financial problem with such prices, the US scrap continues to rise. Oil traders are skeptical that OPEC's oil market balance is either willing or talented.

OPEC + seems to have been thinking of having a strong deal in Vienna early in December but more needs to be done. OPEC Secretary General Mohammad Barkindo wrote to members of the cartel that they should increase the cuts. Initially, the OPEC + coalition offered a 2.5 per cent reduction in the number of manufacturers, but Barkindo said the restrictions should be 3 per cent more than 1.2 million barrels per day.

More importantly, it is important for the group to produce each country. Barkindo said in a letter to members in the letter, "It is important to present these production arrangements to the public in order to promote openness and transparency, and to promote emotional and trust in the market, clarifying how much each country will reduce its thinking, to ensure market concern about the seriousness of the group will be a long way to go.

Still, fluctuations in oil prices this month prove that the traders are not satisfied. As it is seen, "the United States will continue to grow like gangbusters and will boost any OPEC activity," Helime Croft, Canadian broker, told RBC's chief commodity strategy director, Wall Street Journal. "If there is no real geopolitical explosion, it will take time for these cuts to really change their sensitivity." Related: Interest rate increase was fatty

Sales from manufacturers such as Saudi Arabia will help to provide the market, but OPEC can help cut the image in a more undesirable way. Bloomberg believes that oil prices will increase some of the OPEC member states' incidents. Prices between 2014 and 2016 have led to a break in Libya, Venezuela and Nigeria, or at least aggravated. Again, it can be the same.

All OPEC members need more oil prices to balance their books. Saudi Arabia's total budget is about $ 88 per cut. Libya needs $ 114. Nigeria needs $ 127. Venezuela needs $ 216. Only Kuwait – $ 48 per barrel – can balance its books at superb prices. Brent is currently trading at $ 50.

This is likely to increase the likelihood of more disturbances. In Venezuela, losses in collateral are guaranteed and largely convert to market forecasts – although the level of decline is unclear. But more unexpected cuts are possible and lower prices. Libya and Nigeria are the most likely sources of instability. Unexpected failures in supply in 2019 can lead to the strengthening of the market.

However, although there are many challenges facing OPEC +, one of the key factors in maintaining the balance of the market is under the control of the group. Most of the OPEC focuses on the negotiating side of the debate – how much the group needs to produce to achieve some price target. However, problems with the oil market can now be bigger.

In particular, global economic slowdown can become a slower demand for a problem that OPEC + can solve. Deterrentering of oil prices is not just a matter of market expectations outside the United States.

The financial crisis and the slowdown in the global economic downturn have hampered OPEC's deficits and recent criticisms by some OPEC officials. After stifling the Federal Reserve interest rates, stock markets have stuck in recent days and increased by two degrees in 2019.

Until 2019, dramatic changes have not been made to oil demand from advanced energy sources such as EIA or IEA. However, financial instability and welding oil market are only being cultivated lately. The IEA maintained a growth rate of 1.4 mb / d for the demand next year, but it had a salt grains. Requirements may be future. OPEC + may have to keep its full scholarships in place in 2019, but it is still unclear whether the price can be recovered until just two months ago.

By Nick Cunningham, Oilprice.com

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