Crude prices seen at $80-85/barrel through FY24
Brent crude registered a fall to a level of $80.6 per barrel despite the recent decision of the Organisation of Petroleum Exporting Countries (OPEC) and its allies to extend output cut of 1.7 million barrels a day to 2024. Analysts see crude prices to remain in the range of $80-85 per barrel going ahead.
“Oil prices immediately sunk after the announcement, reversing gains from earlier in the day, suggesting the market was disappointed by the outcome,” said Jorge Leon, senior vice president at Rystad Energy. “As a result, we expect prices to hover between $80 and $85 per barrel in the coming months.”
The benign outlook for Brent crude prices augurs well for India, which meets 85% of its crude oil requirement via imports. The import bill has reduced in recent months, as crude prices softened and the supply for diversified, with Russian Ural accounting for a major share of imports.
The Indian basket of crude is still closely linked to Brent. Despite the rise in import volumes, the net crude import bill declined by nearly a fourth to $68 billion in Apr-Oct period compared with $90.1 billion in the corresponding period of last fiscal. Lower crude oil import bill will allay the concerns over the current account deficit, even as merchandise trade deficit touched an all-time high of $31.5 billion in October.
OPEC and allies’ decision was aimed to arrest any fall in price, as demand from the top consumers dwindle.
However, the decision failed to have the desired affect, said Gnanasekar Thiagaranjan, Director, Commtrendz Research.
Moreover, the decision comes as a cushion against a possible fall in prices on the back of decline in the demand for crude going ahead.
“There is a feeling in the market that there will be a possible recession in the US and demand may not be good. And alternative energy sources is denting fossil fuel demand,” Thiagaranjan said.
As far as Angola and Nigeria are concerned, the countries who were against production cuts, what needs to be seen is the adherance to the decision.
“Angola, Nigeria, and Congo’s production levels were slashed and there is not a major actual decline in production since these countries were unable to produce at their earlier defined baseline,” said Pulkit Agarwal, Head of India Content (Cross-Commodities Expert), S&P Global Commodity Insights.
The new production cuts has taken OPEC+ quota for the first quarter of 2024 at 35.6 million barrels a day, down from 37.3 million bpd expected before the meeting, Leon said. “This assumes that Russian export cuts (crude and products) do not affect production levels,” he said.
According to Rystad Energy, the updated liquid balance for the first half of 2024 now shows a market deficit of around 400,000 bpd.
“Because OPEC+ members already have cut supply significantly the need for additional reductions can generate reluctance and pushback,” said Bhushan Bahree, Executive Director, S&P Global Commodity Insights.
Going ahead, analysts believe that the next challenge for OPEC+ will be the state of demand when the time comes to dial back the cuts affirmed in its recent meeting.
OPEC+ on Friday announced a reduction in oil output by 1.7 million barrels per day till March 2024. The cut combines the voluntary 1 million bpd reduction by Saudi Arabia and an additional 0.7 million bpd voluntary cut from Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman.
Further, Russia also extended its voluntary export cut of 500,000 barrels a day constituting 300,000 bpd for crude and 200,000 bpd for fuel products.
Another outcome of the meeting was Brazil’s decision to join OPEC+ alliance. The country is the eighth largest producer of oil with 3.6 million bpd production.
Adding Brazil’s production to the group will take OPEC+’s global market share to more than 60%, returning it to 2018 levels, as per analysts.