Citi Research said in a note on Wednesday the final market impact of OPEC+ decision to slash oil production would depend on the agreement duration, and expects major consumers to “react with displeasure” to the deal.
OPEC+ agreed to its deepest cuts to production since the 2020 COVID-19 pandemic, despite a tight market and opposition to cuts from the United States and others.
“Our projections for 2023 without this cut was for a 2.1 million barrels per day (bpd) average oversupply, given weak demand and relatively ample supply, so such a real over 1 million bpd cut could halve this surplus,” the note added.
OPEC‘s de-facto leader Saudi Arabia said the cut of 2 million bpd of output – equal to 2% of global supply – was necessary to respond to rising interest rates in the West and a weaker global economy.
“U.S. Congress could be compelled to resurrect the so-called NOPEC (No Oil Producing and Exporting Cartels) bill again … while SPR policy might also shift, and there could be greater impetus to complete an Iran nuclear deal,” Citi said.
Oil prices rose for a fourth session on Thursday, with Brent at a three-week high.
Citi also said the possibility of further supply disruptions, potential reshuffle of trade flows amid the upcoming Russian oil price cap and European embargo, and deteriorating macro-economic environment would continue to drive volatility through the winter and 2023.