Crude oil got a shot in the arm after the Organization of the Petroleum Exporting Countries (OPEC)) announced surprise output cuts. The US West Texas Intermediate (WTI) rose by $6.34 to $80.47 on Monday while Brent crude hit $84.86, gaining 6.15%. The black gold is expected to test $90-95 level by the end of 2023.
The production cut will likely help the cause of crude oil in the medium to long term and Brent could test levels of $90-95 by December, Anuj Gupta, Vice President (VP), Commodity and Currency Research at IIFL Securities said. Brent has been an underperformer and lost 7.24% on the year-to-date basis and nearly 4.04% in March, he added.
Meanwhile, Goldman Sachs raised Brent crude price forecast for December 2023 to $95 per bbl and December 2024 forecast to $100 per bbl following the announcement. The global investment bank lowered its end-2023 production forecast for OPEC+ by 1.1 million bpd.
Goldman estimated the output reduction could provide a 7% boost to oil prices, contributing to higher Saudi and OPEC+ oil revenues.
The move is being seen as an attempt by the consortium of oil-producing countries to stabilize oil prices.
The announcement came on Sunday wherein OPEC+ undertook production cuts of about 1.16 million barrels per day. The current move brings the total volume of cuts by OPEC+ to 3.66 million bpd, according to Reuters calculations, which is equal to 3.7% of the global demand.
“Today’s surprise cut is consistent with the new OPEC+ doctrine to act pre-emptively because they can without significant losses in market share,” Goldman Sachs said.The group known as OPEC+ had been expected to maintain its earlier decision to cut output by 2 million bpd until December at its monthly meeting on Monday.
“The risks around cutting production have become asymmetric given how short positioning has become, and because price increases in response to tightening events can be stronger when the market is short,” Goldman Sachs said.
Meanwhile, the Biden administration has called the move unwise.
Last month, Brent fell towards $70 a barrel, the lowest in 15 months, on concern that a global banking crisis and rising interest rates would hit demand despite lower OPEC oil output in March due to oilfield maintenance in Angola and a halt in some of Iraq’s exports.
Trading Strategy
On MCX, the April Crude Oil futures were trading at Rs 6,570 per bbl, up Rs 371 or 5.98% in the early trade. Gupta’s strategy on April oil futures is a buy at Rs 6,150 with a stop loss at Rs 6,000 and a price target of Rs 6,500.
(Inputs from Reuters)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)