Saudis Have No Good Reason to Drive Oil Up to $100

Saudi Arabia has no good reason to drive the oil price up to $100 per barrel.

That’s according to Bjarne Schieldrop, the Chief Commodity Analyst at SEB, who made the statement in a note sent to Rigzone this week.

“While they [Saudi Arabia] may choose to keep production at around 9.0 million barrels per day for a little while longer they have no good reason to drive the oil price up to $100-110 per barrel as it would receive a lot of political pain from the U.S., China, India, Europe,” Schieldrop said in the note.

“Saudi Arabia should be fully content for the moment. It has shown the market yet again who’s the boss. Why ruin the party with oil rallying above $100 per barrel [and] stir political tensions when oil at $85 per barrel is such a beautiful place,” he added.

“The world needs more of its oil, and Saudi Arabia has spare capacity to provide it. Tapering of Saudi Arabia’s cuts in Q4-23 would be the natural thing to expect. But all through September at least there should be a very sharp and tight market,” he continued.

In the note, Schieldrop highlighted that the International Energy Agency (IEA) now estimates that global demand was 103 million barrels per day in June and that the organization expects demand to be 103.1 million barrels per day in the fourth quarter of this year.

“The global market is set to run a deficit of 1.7 million barrels per day in Q4-23, if Russia and Saudi Arabia stick to their current production,” Schieldrop said in the note.

“After having put the market straight there is no reason for Saudi Arabia to let such a deep deficit and inventory draw actually play out. The IEA estimates that global demand this year will average 102.2 million barrels per day versus 99.9 million barrels per day in 2022, giving a rebound of 2.2 million barrels per day year on year,” he added.

“However, there is still potentially huge pent-up demand for oil, which may have built up during the Covid-19 years. Whether that potential pent-up demand will actually emerge or not remains to be seen,” he added.

“Saudi Arabia has plenty of spare capacity at hand and it can easily lift production by 1.5 million barrels per day again back up to 10.5 million barrels per day,” Schieldrop went on to state.

In its latest oil market report, the IEA noted that world oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation, and surging Chinese petrochemical activity.

“Global oil demand is set to expand by 2.2 million barrels per day to 102.2 million barrels per day in 2023, with China accounting for more than 70 percent of growth” the IEA’s August OMR stated.

“With the post-pandemic rebound running out of steam, and as lackluster economic conditions, tighter efficiency standards and new electric vehicles weigh on use, growth is forecast to slow to one million barrels per day in 2024,” it added.

The OMR pegged Saudi Arabia’s June 2023 supply at 9.98 million barrels per day and its July 2023 supply at 9.06 million barrels per day. The country was the biggest producer among the OPEC+ group in June, but fell behind Russia in July, according to the report, which put Russia’s production at 9.4 million barrels per day last month.

Total OPEC+ production decreased from 43.69 million barrels per day in June to 42.46 million barrels per day in July, the OMR revealed.

At the time of writing, the price of Brent crude oil is trading at $84.82 per barrel. The commodity rose from a close of $72.26 per barrel on June 27 to a close of $87.55 per barrel on August 9. The last time Brent closed above $100 per barrel was in August 2022.

According to the U.S. Energy Information Administration’s latest short term energy outlook, which was released earlier this month, the Brent crude spot price will average $82.62 per barrel in 2023 and $86.48 per barrel in 2024.

In a report sent to Rigzone this week, Standard Chartered revealed that it expects ICE Brent to average $91 per barrel in 2023 and $98 per barrel in 2024. The company sees the commodity averaging $106 per barrel in the fourth quarter of next year, the report outlined.

RIGZONE