OPEC+ Production Quotas Cuts Soft on Oil Market –Fitch

OPEC+ Production Quotas Cuts Soft on Oil Market –Fitch

The Organisation of Petroleum Exporting Countries and allies (OPEC+) decision to cut production quotas by 2 million barrels per day (MMbpd) will have a muted impact on the oil supply market as actual output cuts will be smaller, Fitch Ratings says in a new report.

Saudi Arabia and the United Arab Emirates, UAE, will have to make the largest actual cuts to production, while many other countries, including Nigeria, have some headroom under their quotas to increase production.

A recessionary economic outlook will lead to lower oil demand, although demand has recently been boosted by switches from gas to oil in energy generation, driven by soaring natural gas prices, particularly in Europe and the Middle East.

Demand growth has been fairly weak in other sectors. The recent increases in global oil inventories suggest that the market is in a production surplus. READ:T-Bills, Bonds Steady over Soft Demand, Declining Spot Rates

“We expect OPEC+ to target a broad balance in the oil market by changing production quotas and available crude supplies, although it may become increasingly difficult to achieve a consensus among the members due to demand uncertainties and the recession in large developed markets.

“However, we expect pricing volatility to remain high in the short term as geopolitical factors, such as further sanctions leading to a reduction in Russian exports or a potential conclusion of the Iran nuclear deal that could increase oil production in the country, could significantly shift supply patterns and cause large fluctuations in prices”, Fitch stated.

The rating organisation said in the medium and long term it expects prices to moderate as geopolitical tensions should eventually ease, with prices moving closer to full-cycle costs. Oil demand will be increasingly affected by decarbonisation of the global economy.

# OPEC+ Production Quotas Cuts Soft on Oil Market –Fitch#

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