Brent could climb towards $100/barrel as reduced Saudi production could worsen supply shortfall

By Florence Tan

SINGAPORE, June 5 (Reuters) – A global crude oil supply shortfall is expected to widen in the third quarter as the world’s top exporter Saudi Arabia pledges to further cut output from July , which should push Brent towards $100 a barrel by the end. of the year, according to analysts.

Oil prices jumped more than $1 a barrel on Monday as Saudi Arabia’s energy ministry announced on Sunday that its output would fall to 9 million barrels per day (bpd) in July from around 10 million bpd in May , the kingdom’s biggest reduction in years.

The voluntary reduction pledged by Saudi Arabia comes on top of a broader agreement reached by the Organization of the Petroleum Exporting Countries and their allies, including Russia, to extend production cuts until 2024 as the group seeks to drive down oil prices.

“Saudi Arabia has a proven track record of substantial reductions,” RBC Capital’s Helima Croft said in a note.

“Therefore, we expect the full unilateral reduction of 1 million bpd to hit the market in July, nearly doubling the true physical reduction we’ve seen from the producer group since October.”

The move paved the way for tighter supply and put a floor of $70 a barrel under prices, analysts said, but the Saudi drop is unlikely to push prices up immediately as it will take time to reduce. stocks.

“With Saudi Arabia protecting oil prices from falling too low by cutting production, we believe oil markets are now more deficit prone later this year,” Commonwealth analyst Vivek Dhar said. Bank of Australia, in a note.

“We expect Brent futures to hit $85/bbl by Q4 2023, even taking into account a tentative recovery in demand in China.”

Goldman Sachs analysts Daan Struyven and Callum Bruce said the “moderately bullish” OPEC+ meeting partially offsets some downside risks to the bank’s December 2023 price forecast of $95 a barrel, including stronger than expected supply from Russia, Iran and Venezuela, and weaker Chinese demand below expectations.

ANZ said the potential for a sharp rise in crude prices has risen sharply as supply is expected to tighten significantly in the second half of the year if the US Federal Reserve suspends interest rate hikes and macroeconomic headwinds are easing.

“Investors are likely to add bullish bets, confident that Saudi Arabia and OPEC will provide a backstop if the market encounters headwinds,” ANZ analysts Daniel Hynes and Soni Kumari said in a note. , maintaining their year-end target of $100 a barrel for Brent.

However, price gains may be limited in the short term until there are signs of physical market tightening, they added.

In contrast, the United Arab Emirates was allowed to raise its production targets by around 200,000 bpd to 3.22 million bpd while Russia, African producers and other small producers reduced their quotas to bring them into line. on their actual production levels.

“ADNOC’s investment in expanding idle capacity and its benchmark Murban (price) has fueled concerns that it may eventually seek to exit the producer group and fully monetize these investments” said RBC’s Croft.

“Granting it the 200,000 bpd quota adjustment for 2024 seems to settle the issue of its OPEC membership for now.”

(Reporting by Florence Tan; Editing by Sonali Paul)

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