Despite a contentious production cut, it remains to be seen if the drop in oil prices over the past few months will prove to be temporary or if prices will return to earlier 2022 levels.
Prices on the Brent benchmark are expected to return to more than $100/bbl by Christmas, said Norwegian consultancy Rystad Energy, while others predict fears of a recession, accompanied by a drop in demand and increased supply, may keep a handle on prices.
The West Texas Intermediate (WTI) benchmark price consistently lags behind Brent, which stood at $94.65/bbl on Nov. 1, with WTI coming in at $88.37/bbl.
Saudi Arabia-led OPEC and allied producers decided to cut global oil production beginning in November, effectively spurning President Biden’s plea in July to raise production.
The announced 2 million bbl/d reduction will likely amount to around 1.2 million bbl/d, when adjusted for some producers’ unmet quota levels, said Rystad and others.
Regardless, the global oil cut has dampened the already prickly relationship between the U.S. and the desert kingdom.
The production curb comes amid “weaker-than-expected demand as recession weighs and as supply ticks up in the U.S.,” said Rystad Senior Vice President Jorge Leon. “The announced OPEC+ cuts, even if executed at a 60% level, would push inventory draws into bullish territory.”
In a counter-forecast, the U.S. Energy Information Administration (EIA) predicts WTI will average just over $88/bbl and Brent $95/bbl into next year, staying fairly close to current levels.
“We lowered our price forecast for 2023 by $2/bbl compared with last month’s forecast, which largely reflected a 0.5 million bbl/d reduction in our forecast for global oil consumption in response to a lower forecast for global GDP (gross domestic product) from Oxford Economics,” the EIA concluded in its Oct. 12 Short Term Energy Outlook.
Meanwhile, after falling some 3% below normal at the end of September, U.S. oil stockpiles increased by 9.9 million bbls the week ending Oct. 7, according to the EIA. Excluding crude held in the government-controlled Strategic Petroleum Reserve, U.S. oil inventories of 429.2 million bbls, however, were still roughly 1% below the normal five-year average for that time of the year, the EIA said.
Some 14% of U.S oil production is expected to come from the Gulf of Mexico, with the latest EIA data showing the Gulf delivering 1.762 million bbl/d in July. The Bureau of Ocean Energy Management (BOEM) predicts Gulf of Mexico oil production will increase to 1.892 million bbl/d this year, up from 1.693 million bbl/d in 2021.