DUE to the recent OPEC+ agreement, and with the support of Russia to stick to its exports and its reduction commitment to OPEC, oil price is accordingly hovering around the magic number of $80 per barrel. This is set to remain as it is, and perhaps goes beyond the current level to reach above $90 per barrel by the end of next month with the end of the summer and driving season.

Russia’s action, along with Saudi Arabia’s voluntary move to reduce production by one million barrels per day from this month and possibly the next, shows the solidity of OPEC+ and the firmness of the two biggest oil producers and exporters.

Oil prices will keep firming up as long as the two allies are committed to keeping the oil volume in order. Of course, the Saudi reduction will cause the total OPEC+ reduction to reach about 4.2 million barrels per day, making total OPEC production 22.58 for the month of June 2023. This is after adding Iran’s volume of 2.7, Libya of 1.14. and Venezuela of close to one million, making total OPEC production reach 28.23 million barrels per day. Next month, Saudi’s one million barrel reduction will make the oil organization hit the lowest volume of production since COVID-19 pandemic. Nevertheless, the oil markets should be receptive to the coming volume of crude oils and finished products from Iran, making an extra 300, 000 barrels per day available for the market.

From next month onwards, Russia will beat Saudi Arabia in taking the spot for the top oil producer due to Saudi’s one million barrels per day reduction, which may last for two months or more. However, this should not be of great concern if oil prices continue to climb up. It will make oil producers happy due to the hope of reducing their financial deficits by the end of the year. Against such a background, oils are pouring from other sources such as from USA, Canada, and Norway, which caused the oil prices to fall recently.

This will not be enough to cool down the oil prices, as the demand is on the rise and could reach two million barrels per day before the end of the year, reaching 102 million by then. It could grow further by 2.2 million next year, causing the oil supply to be short, without additional oil coming from non-OPEC countries, if the world needs to avoid major oil disruptions, unless USA eases the sanctions on Iran and Venezuela to export and produce more oil in order to avoid major disruptions. It seems, with the current assumptions, the possible economic recovery of China, and the rise in oil demand, it is certain that the oil price will go higher. This is unless other oil producers outside of OPEC can enhance oil production further.

By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]