© Reuters Aerial view of Idemitsu Kosan Co. An oil factory is seen in East Ichihara, Tokyo, Japan on Nov. 12, 2021, in this photo taken by Kyodo. Mandatory credit Kyodo/via REUTERS
(Amends 1-1.5 million bpd to 0.5-1 million bpd in paragraph 4)
By Emily Cho and Isabelle Cua
SINGAPORE (Reuters) – OPEC must cut output to reduce supply if it wants prices to remain supported, executives at an oil conference said on Monday as demand for global oil inventories weakened and the U.S. dollar strengthened. .
Oil prices have soared past $100 a barrel since Russia, a major oil exporter, invaded Ukraine in February. But prices have fallen nearly 40% from their highs on fears that an economic slowdown will dampen demand.
And U.S. West Texas Intermediate (WTI) prices fell to eight-month lows on Monday, last trading around $85 and $78, respectively, weighed down by a stronger U.S. dollar and fears that rising interest rates could push major economies into recession and reduce oil demand. [O/R]
Gary Ross, CEO of Black Gold Investors LLC, said OPEC would need to cut oil by 0.5-1 million barrels per day, but oil production will continue to build in the first quarter despite falling Russian oil output. Result.
“If OPEC doesn’t cut, we could be in contango in the first quarter, so if they want to see prices in the $90s, they’re going to have to cut,” Ross said.
But others agreed that share buildings would increase prices, although fears will grow when European sanctions come into effect on December 5.
The European Union’s ban on Russian crude and oil products in the next few months could tighten supplies and push up prices, even as G7 nations hope to reduce supply disruptions by implementing a price reform mechanism.
“As demand decreases and more production comes in, inventories will increase next year… but everything depends on the Russian oil spill or not. This is the elephant in the room,” said Fereyd Fesharaki, founder and chairman of the energy consultancy. He told Reuters on the sidelines of the conference that they are imposing restrictions on Russian oil.
The successful revival of the Iran nuclear deal will “in a big way” lead to stockpiles, which will lead to a reduction in production by OPEC + or the Organization of the Petroleum Exporting Countries and its allies.
“Oil’s recent price outlook is all about sentiment (signals from China and fears about the future). But when we get to December 5, if Russian oil closes, the price will be $120 or more.”
Increasing Chinese demand
But refiners in China, the world’s biggest crude importer, expect Beijing to release an export quota of around 15 million tonnes for the rest of the year to support exports. Such a move would increase global supplies and lower oil prices, but could support China’s demand for crude.
At least three Chinese state-owned refiners and a privately-run megarefiner are planning to boost runs by up to 10% in October from September, likely due to stronger demand and fourth-quarter oil exports.
“Through the refiners, state-owned companies have pushed to export more products… I think to try and increase exports and support the yuan and trade balance,” Black Gold Investors’ Ross said.
However, Chinese refiners will find it difficult to export 15 million tons by the end of the year, he added, “because it is tied to the corner.”
“I think they will export quite a bit of that, and it’s not clear at this stage, but it doesn’t look like the quotas will carry over into next year.”