As OPEC+ oil producers prepare for their meeting this weekend, Goldman Sachs has indicated that the potential for a deeper group oil output cut is on the table. The bank expects Saudi Arabia and Russia to announce an extension of their additional voluntary curbs through at least the first quarter of 2024. OPEC+ ministers are set to convene on Sunday to determine output policy, and Goldman Sachs suggests a significant 35% probability that major OPEC producers may announce a "deeper" group cut. The bank notes that OPEC policymakers may want to take precautions against the possibility of Brent prices dropping below $80 per barrel amid weaker seasonal demand in Q1.
While Goldman Sachs's base case is that policymakers will leave the voluntary group cut unchanged, it acknowledges the possibility of a deeper cut. The suggested cut could be shared across major OPEC+ producers and cover a relatively short period, being moderate in size. One option discussed is a 0.5-1 million barrel per day cut through Q1, proportionally shared among large producers such as Saudi Arabia, Russia, the UAE, Iraq, and Kuwait. Goldman Sachs notes that while oil prices may rise a few dollars in the scenario of a deeper cut, the immediate price reaction could be neutral or skewing to the downside in most other scenarios.
OPEC+ members, including Saudi Arabia, Russia, and others, have already committed to output cuts of 5.16 million barrels per day, representing about 5% of daily global demand. These cuts began in late 2022 and include 3.66 million barrels per day by OPEC+ and additional voluntary cuts by Saudi Arabia and Russia. The upcoming meeting will provide insights into the group's strategy amid evolving market conditions.
The uncertainty surrounding the output decision reflects the delicate balance OPEC+ faces in managing supply to support prices while considering factors like seasonal demand and the global economic recovery. The outcome of the meeting will have implications for oil markets and contribute to shaping the trajectory of oil prices in the coming months.
By fLEXI tEAM