Oil Slips Below 90 USD, but Fundamentals Remain Bullish
Despite intense pressure from the US administration in the weeks leading up to the decision, OPEC+ ultimately approved a production cut of 2 million barrels daily, which resulted in an increase in oil prices for the United States, a decrease for Europe, and more stable prices for Asia.
According to Jake Sullivan, the US National Security Advisor, the President is disappointed by the shortsighted decision by OPEC+ to cut production quotas and the Biden Administration will also consult with Congress on additional tools and authorities to reduce OPEC+’s control over energy prices. However, he didn’t mention that the Keystone XL pipeline cancellation and the suspension of new oil and gas leases on public lands made by the Biden administration gave OPEC+ the upper hand.
According to oilprice.com, the decision by OPEC+ was undoubtedly influenced by market fundamentals. Still, it was also perhaps a reaction to Biden’s characterization of Saudi Arabia and its crown prince, Mohammed bin Salman (MbS), as “pariahs” for the murder of activist and supporter of the Muslim Brotherhood, Jamal Khashoggi. Although it might have sounded good during the campaign, the crown prince cannot be overlooked in the relationship between America and the Kingdom.
Furthermore, OPEC+ was blamed for taking the Russian side. It was also forgotten that the Saudis worked hard to convince Russia, a significant oil producer, to join OPEC+ ensuring that its actions would comply with the group, which it finally did in 2016, and to prevent US companies from dominating the oil market—a reasonable move for an economic rival.
Other sources reported that OPEC reduced its forecast for demand growth this year by between 460,000 BPD and 2.64 million BPD on Wednesday, citing strong inflation and China’s COVID-19 control measures’ revival.
“The world economy has entered into a time of heightened uncertainty and rising challenges,” OPEC said in its monthly report.
Moreover, the US Energy Department revised its domestic production and consumption forecasts. It now predicts only a 0.9% growth in consumption in 2023, down from an earlier prediction of a 1.7% increase. In addition, a 5.2% increase in crude production is predicted as opposed to the previously expected increase of 7.2%.
The oil price has broken above the solid bearish trend line, implying further gains in the coming days. We might see higher prices if it trades above 85 USD. The target for bulls should be at the 200-day moving average, near 98 USD.