- Oil prices have tumbled in recent weeks over concerns about the health of U.S. banks
Will Horner, WSJ
LONDON
EnergiesNet.com 05 16 2023
Supply disruptions in Iraq and Nigeria caused OPEC to pump less oil in April, further straining an already tight oil market as some of the group’s largest producers are set to slash output sharply within weeks.
The declines come as the Vienna-based oil producers’ group left its forecasts for global oil demand and supply unchanged, meaning it continues to foresee stronger demand later this year which the oil market could struggle to satisfy—raising the threat of higher oil prices.
In its monthly report, the Organization of the Petroleum Exporting Countries said its production fell by 191,000 barrels a day in April to 28.60 million barrels a day due to production problems in Nigeria and a legal dispute in Iraq.
Iraq’s production fell by 203,000 barrels a day in April from the previous month, OPEC said, citing data collated from several independent data providers such as S&P Global Platts and Argus Media. Nigeria’s output slipped by 170,000 barrels a day. Together the declines outweighed a modest increase in output in Saudi Arabia and Iran.
Iraq’s output has slipped because a pipeline linking its oil-rich semiautonomous Kurdish region with an export terminal on Turkey’s Mediterranean coast has been closed for over a month amid a legal dispute involving Baghdad, the Kurds and Turkey. Talks to resolve the issue have shown signs of progress but flows through the pipeline are yet to resume.
The declines come as the oil producers’ cartel, which has consistently struggled to meet its own production targets, plans to further reduce its production levels. A group of the cartel’s largest members, including Saudi Arabia—its de facto leader—said last month they plan to reduce output by over 1 million barrels a day starting in May.
That move has puzzled analysts, who broadly see a need for more barrels of oil this year, not fewer, to meet demand from growing economies in Asia, in particular, China. OPEC’s own forecasts, which it left unchanged in Thursday’s report, also foresee growing demand this year to the tune of 2.3 million barrels a day.
Russia, meanwhile, which is allied with OPEC in a grouping known as OPEC+, appears to have maintained its output despite saying earlier this year that it would reduce its output by 500,000 barrels a day. As part of the Saudi-led action, Moscow said it would extend those cuts until the end of the year.
Despite initially rising following those cuts, oil prices have tumbled in recent weeks over concerns about the health of U.S. banks heightening fears of a recession that would crimp demand for crude. Brent crude, the international oil benchmark, earlier this month hit its lowest level since December 2021. It fell 1.9% to close Thursday at $74.98 a barrel. The main U.S. oil price shed $1.69 to end at $70.87.
The declines have added to analysts’ expectations that OPEC+ could use a meeting early next month to recommend reducing its collective output further in an effort to prevent further falls in oil prices. OPEC says it makes changes to output based on demand forecasts and doesn’t seek to direct oil prices.
“OPEC+ hasn’t really even started cutting yet,” said Bjarne Schieldrop, chief commodities analyst at SEB, in a note. “OPEC+ has lots of ‘dry powder’ for further cuts if needed.”
Write to Will Horner at william.horner@wsj.com
Appeared in the May 12, 2023, print edition as ‘OPEC Signals Stronger Demand Ahead’.
