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OPEC Likely to Extend Cuts to Keep Crude in $80s/bbl This Year

OIL

Oil markets are not pricing in much additional geopolitical risk from ongoing Middle East tensions according to Bob McNally, president of Rapidan Energy.

  • No more than $1-$2/bbl is added to prices amid the Red Sea shipping crisis.
  • An actual interruption of supply would be needed to add extra risk premium. The main risk is an escalation with Iran involvement and a blockage of Strait of Hormuz although both the US and Iran are trying to avoid a conflict.
  • OPEC+ will likely need to extend production cuts beyond Q1 to prevent an oversupply but won’t make deeper cuts with a decision expected in the coming weeks.
  • OPEC+ producers, led by Saudi Arabia and Russia, need to maintain output curbs to keep prices from slipping below the low $80s amid slowing Chinese demand and macro risks.
  • Oil likely to remain in the $80s this year unless geopolitical disruption but could rise into the middle of the decade.
Energy BulletsCommodities
Energy BulletsCommodities

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