SEB Commodity Chief Says No Chance OPEC+ Will Fold Cards Now

There is no chance that Saudi/OPEC+ will fold their cards now that we see emerging signs of global revival. 

That’s what Bjarne Schieldrop, the Chief Commodity Analyst at Skandinaviska Enskilda Banken AB (SEB), said in a report sent to Rigzone recently, adding that “the great concern for a long time has been that the incredible rise in interest rates would lead to a recession”.

“If that were to happen, it would kill oil demand cyclically and possibly force Saudi/OPEC+ to increase production, let the oil price fall, thus reducing U.S. shale oil production to a more suitable level,” he added.

Schieldrop noted in the report, however, that the latest manufacturing Purchasing Managers Indexes (PMIs) are “very interesting reading”.

“India is of course full steam ahead at 56.5 and suddenly, South Korea has moved up to 51.2. U.S. ‘new orders’ has jumped to 52.5, the global PMI has lifted to 50.0 and the EU is ticking higher month by month as the cost of natural gas now has come down just an inch from the real average price from 2010-2019,” the SEB Chief Commodity analyst said in the report.

“These emerging signs of improvements are music to the ears of Saudi/OPEC+. It almost seems too good to be true amid high interest rates, geopolitical turmoil, EU energy crisis, and Chinese property market problems. Still, that is what the PMIs have been indicating,” he added.

In the report, Schieldrop stated that, “with emerging signs of a global revival, it is very unlikely that Saudi/OPEC+ will cave in and switch from ‘price over volume’ to ‘volume over price’”.

A potential revival implies a stronger demand impulse down the road, the SEB Chief Commodity Analyst highlighted in the report.

“If you look upon the world economy with the eyes of an optimist your take would probably be: Chinese policy has shifted focus to growth, Biden’s infrastructure stimulus package is stimulating the economy significantly, the EU is crawling out of the woods as natural gas prices have come down, India marches on, inflation globally is fading and interest rate cuts are coming,” Schieldrop added.

In its latest short term energy outlook (STEO), which was released this week, the U.S. Energy Information Administration projected that OPEC+ crude oil production will average 35.79 million barrels per day in the first quarter of this year, 36.63 million barrels per day in the second quarter, 36.78 million barrels per day in the third quarter, and 36.61 million barrels per day in the fourth quarter.

The February STEO forecast that OPEC+ output will average 36.45 million barrels per day overall in 2024. It also put 2023 OPEC+ crude oil production at 37.08 million barrels per day.

In its latest oil market report, which was released in January, the International Energy Agency put total OPEC+ crude oil production at 41.83 million barrels per day in November 2023 and at 41.85 million barrels per day in December 2023.

A statement posted on the OPEC website last month noted that, at the outset of 2024, the OPEC Secretariat, in consultation with OPEC member countries and the non-OPEC producing countries participating in the Declaration of Cooperation (DoC), “re-affirms the full commitment by the countries participating in the DoC to unity and cohesion, as well as their continued and unwavering efforts to maintain oil market stability going forward through the DoC”.

“The extraordinary efforts by OPEC member countries and non-OPEC producing countries participating in the DoC have been evident in supporting the global economy to overcome the many challenges witnessed throughout the past several years, including the Covid-19 pandemic, and have ensured stability of the oil market especially when compared to other commodities,” it added.

“The unprecedented levels of cooperation, dialogue, mutual respect, and trust will continue to be the basis for these continued collaborative efforts going forward. This is for the benefit of all producers, consumers, and investors, as well as the global economy at large,” it continued.

OPEC’s website states that the DoC constitutes an unprecedented milestone in the history of OPEC.

“For the first time ever, OPEC member countries coordinated with 11 non-OPEC oil producing countries (now 10 – Equatorial Guinea became an OPEC Member in May 2017) in a concerted effort to accelerate the stabilization of the global oil market,” it notes on its site.

“The DoC was an outcome of the Joint OPEC and non-OPEC Producing Countries’ Ministerial Meeting held on 10 December 2016 and was effective for an initial period of six months. The remarkable success realized through this unprecedented cooperation has led to its extension multiple times,” it adds.

To contact the author, email andreas.exarheas@rigzone.com