Abu Dhabi: Opec is expected to continue the policy of keeping market tight as several member countries need higher oil prices to meet fiscal obligations, analysts said.
Opec (Organisation of the Petroleum Exporting Countries) as well as Russia are currently cutting production by 1.2 million barrels per day to rebalance oil markets and support oil prices. The deal which came into effect earlier this year will continue till the end of June when Opec meets for its annual meeting in Vienna.
“The Opec+ group of producers’ recent meeting in Baku, Azerbaijan, left the market with the clear impression that crude oil will continue to climb higher. Several Opec producers, not least Saudi Arabia, need oil back above $80 per barrel to meet their fiscal obligations and they are unlikely to be satisfied with Brent crude oil below $70 per barrel,” said Ole Hansen, head of commodity strategy at Saxo Bank.
“On that basis the market now expects that supply will be kept tight beyond June to support further price appreciations. This is a strategy that would work well into a world of strong growth and demand but potentially not into one that is seeing the US yield curve continuing to flatten and where recession risks have risen to the highest since 2008.”
“While Opec, together with Russia, can control output, it has no influence on demand, and as the price of oil goes up so does the tax burden on everyone else.”
He expects upside to oil prices in the second quarter but adds, “The well-being of the stock market will send an important signal as to whether demand growth concerns will re-emerge as a focus to offset the price supportive focus on (falling) supply”.
International benchmark Brent was down by 1.22 per cent at $67.03 per barrel when markets closed on Friday with West Texas Intermediate at $59.04 per barrel.
“The impact of US sanctions on Venezuela and Iran has further hampered production capacity and lowered output levels significantly for the 2 Opec members. Oil prices as such continue to receive strong support as market sentiments remain positive on a potential supply deficit in the coming quarter,” said Benjamin Lu, commodities analyst at Singapore based Phillip Futures.