Saudi Arabia scorches speculators and Washington as analysts predict $100 oil
Oil prices could jump to $100 a barrel, Goldman Sachs predicted on Sunday, following a surprise move by the Saudi-led group of oil-producing nations to cut output by a million barrels a day starting next month. .
In a note to clients on Sunday, Goldman analysts raised their December 2023 forecast for Brent crude, the international benchmark, to between $5 and $95 a barrel and forecast crude oil prices to hit $100 a barrel in December 2024.
“Today’s surprise (production) cut is in line with OPEC+’s new doctrine to act preemptively as they can without significant losses in market share,” said the US investment bank, according to Reuters.
The move follows a two million barrel per day (bpd) cut announced by Saudi-led Opec and another Russian-led group of producers in October. That decision was threatened by the US, which accused Riyadh of siding with Russia amid its invasion of Ukraine.
The US has tried to block Russia’s ability to tap into its vast energy reserves to finance its war effort by supporting a series of price caps.
On Sunday, Saudi Arabia said it would voluntarily cut 500,000 bpd – about five percent of its output – in “coordination with some OPEC and non-Opec countries”.
Russia, which has been selling its oil at steep discounts as a result of western sanctions, announced an output cut of 500,000 bpd earlier this month that will remain throughout the year.
Middle Eastern producers who have recently expressed frustration at having their production limited have signed on to the cuts. Iraq is cutting output by 211,000 bpd; the UAE 144,000 bpd; Kuwait 128,000 bpd; Algeria 48,000 bpd; and Oman 40,000 bpd, according to the countries’ governments.
Abu Dhabi publicly defended October’s OPEC+ cut, but US officials say the Emiratis have privately protested the move. In March, the WSJ reported that the UAE was considering leaving Opec as a result of differences with Saudi Arabia. Emirati officials denied the reports.
Saudi Arabia defended cutting on Sunday as needed to support oil prices, which have fallen from record highs last year amid rising recession risks. The kingdom was not immune from the global economic upheavals. The collapse of SVB Bank in the United States was followed by a run on the now defunct Credit Suisse Bank, which almost led to the lender’s involvement with the National Bank of Saudi Arabia.
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The Biden administration’s decision to end additions to the strategic stockpile of US energy reserves sent prices lower. Saudi state media said Sunday’s production cut was “a precautionary measure aimed at supporting the stability of the oil market”.
Saudi Arabia is working to reduce its dependence on fossil fuels but needs the windfall from high energy prices to finance its mega-projects such as the futuristic $500bn city of Neom and a new airline.
As a result of global economic concerns, some speculators are betting that oil prices will fall further.
Sunday’s decision came, without warning, as a jolt. The cut marked the Saudi Energy Minister, Prince Abdulaziz bin Salman, against the speculators. In 2020 he promised, “whoever gambles on this market will cry like hell.”
Brent crude prices were trading up 6.4 percent on Monday evening GMT at $85.01 a barrel.
Unlike the surprise cut in October, Washington is more muted this time. National Security Council spokesman John Kirby told reporters on Monday that the United States had been given a “heads up” on the cut, as he sought to allay fears of a deeper rift.
“We don’t think production cuts are advisable at this time, given the uncertainty in the market,” Kirby told reporters.
The United States “made that clear” he said, but “we are focused on moving forward here”.
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Kirby made a distinction between the state of the market today and last year. “We’re just in a different place as well,” he said, noting that crude oil prices are at around $80 a barrel, compared to as much as $120 a year ago.
“We are focused on prices,” he said.
Asked about the troubled relationship with Saudi Arabia, Kirby said the country is “still a strategic partner” but “we don’t always see eye to eye on everything”.
The cut highlights how Riyadh and Washington have distanced themselves from the traditional oil-for-security partnership that has underpinned the relationship for nearly seven decades.
Earlier this month, the Saudis agreed to restore diplomatic ties with Iran, in a landmark deal brokered by China.