Opec delaying its scheduled meeting by four days has taken the market by surprise – initiating a selloff that saw Brent losing 4 percent in a single trading session, before regainning some ground. The selloff was heavy when the news first broke, as investors took it for a major rift among Opec members – possibly including some of the key producers. The nerves have settled a bit after finer details emerged – that the dispute over production quotas pertains to smaller African members –mainly Angola, Congo and Nigeria.
Nigeria, is the biggest producer among the trio of African nations, and one, that is deemed to be closes to the Saudi Arabian viewpoint. Recall that Nigeria had agreed to aggressive production cuts for 2023 back in June 2023, with a caveat that production quotas would be revised upwards if surplus capacities can be demonstrated.
While Opec’s meeting delay is undoubtedly a big deal as it does not usually happen – this possibly carries more of an upside risk to prices than downside. The delay suggests that the cartel alongside Russia is not looing to merely extend the existing production cuts into 2024. There may well be a realistic possibility of deepening the cuts from existing levels. The fact that the meeting is pushed a few days ahead, signifies that the major producers are clearly chalking out plans to reduce supply further, as opposed to earlier expectation of a mere extension in production cuts.
Independent observers have noticed that Saudi Arabia would need oil pr be priced north of $90/bbl for a considerable period, for the Kingdom to put its ambitious economic plans in place. Saudi Arabia has shown its willingness to go to any extent to keep the oil market in what it terms “balanced” – having voluntarily taking out a big chunk of its production to support prices.
On the supply front, not much has changed despite a small uptick in US crude stockpiles. Demand patterns have stayed strong, as noted by the most recent Opec monthly market outlook report. It is becoming increasingly likely that the cartel could well come up with a much more aggressive production cut agenda for 2024 – if it does not go for an immediate cut for the remaining part of 2023. Anything short of deepening production cuts – oil prices could tank to multi-months lows. All eyes are now on the November 30 Opec meeting outcome – that will set the tone for crude oil for the best part of next two quarters.
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