UBS Predicts Tighter Oil Market, Higher Prices Due to OPEC+ Production Cuts
Date
4/12/2023 3:48:49 AM
(MENAFN) UBS has predicted that the voluntary production cuts by nine members of the OPEC+ group will help tighten the oil market and boost prices. In a report released on Tuesday, the Swiss lender cited a drop in crude inventories and supply disruption from northern Iraq of almost 500,000 barrels per day as additional factors supporting prices that could rally towards $100 per barrel. UBS expects oil prices to recover towards $100 per barrel over the coming quarters as the combined voluntary production cuts by the nine oil producers will help tighten the oil market further.
On April 2nd, OPEC+ members including Saudi Arabia, the UAE, Iraq, Kuwait, Oman, and Algeria announced that they would introduce combined voluntary oil production cuts of 1.16 million barrels per day from May until the end of this year. Saudi Arabia, the world’s biggest oil exporter and OPEC's largest producer, agreed to cut its output by 500,000 bpd from May until the end of the year, while the UAE will cut its output by 144,000 bpd for the same period. Russia, which is part of the 23-member OPEC+ group, said the 500,000 bpd cut it was implementing from March to June would continue until the end of the year.
UBS analysts Giovanni Staunovo, Wayne Gordon, and Dominic Schnider wrote in the report, “While flows may resume [from Iraq] in the short term, the interruption and the upcoming voluntary production cuts by nine oil producers should help tighten the oil market further” [1]. The precautionary measure was aimed at supporting the stability of the oil market, according to the producers.
The report highlights the potential for oil prices to recover towards $100 per barrel as a result of the voluntary production cuts. However, the report also notes that the situation remains uncertain due to the ongoing Covid-19 pandemic, geopolitical tensions, and other factors that could impact oil demand and supply. The report states that while the recent OPEC+ production cuts will provide support to oil prices, the market will remain vulnerable to unexpected events such as supply disruptions or changes in demand patterns.
In conclusion, UBS has predicted that the voluntary production cuts by nine members of the OPEC+ group will help tighten the oil market and boost prices. While the recent cuts provide support to oil prices, the market remains vulnerable to unexpected events such as supply disruptions or changes in demand patterns. The situation remains uncertain due to the ongoing Covid-19 pandemic and geopolitical tensions, and as such, the trajectory of oil prices remains uncertain in the coming quarters.
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