The million-barrel bet:
In early June, Saudi Arabia announced that it would cut its oil output by 1 million barrels per day (mbpd)—around a tenth of the country’s production—from next month. The move was in response to Brent crude prices falling close to USD 70 per barrel in recent weeks, and is on top of OPEC-wide production cuts previously announced in October 2022 and April this year.
Diversification efforts at stake:
Saudi Arabia is keen to keep oil prices close to or above USD 80 per barrel, the threshold needed to fund the government’s ambitious diversification strategy—the showstopping centerpiece of which is a USD 500 billion futuristic city to be built in the desert. High oil prices will also fund similar attempts by other Middle Eastern oil exporters to wean themselves off the black gold.
Temporary bounce:
The Consensus among our panelists is indeed for prices to move back above USD 80 per barrel later this year, as global oil supply will be constrained by Saudi Arabia’s and OPEC’s cuts and global demand should pick up. However, prices will still be a far cry from their 2022 levels, thanks to a relatively weak global economy, higher U.S. crude production and reduced concerns over supply from Russia, which has successfully reoriented crude sales to Asia. Moreover, prices are seen resuming a downward trend from 2024 onwards as the move to electric vehicles and renewable energy accelerates.
Insights From Our Analyst Network
On the outlook, EIU analysts said:
“We still expect oil prices to strengthen in the third quarter as seasonally higher northern hemisphere demand and the ongoing recovery in China combined with continued deep OPEC+ cuts send the market into deficit. Our forecast for the average dated Brent Blend price in 2023 is US$80.7/b, softening marginally in 2024 before going into sharper decline in 2025/27.”
Giving his outlook, ING’s Warren Patterson said:
“The oil market is set to tighten significantly over the second half of 2023. Currently, we are forecasting that the global oil market will be in deficit by almost 2MMbbls/d over the latter part of this year. This deficit suggests that we should see prices moving higher over the remainder of the year. Our current ICE Brent forecast is US$96/bbl over the second half of the year.”