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Will OPEC cut oil production on Labor Day?

Saudi Arabia’s signal two weeks ago that OPEC+ could decide to cut production at any time, in any form, pushed Brent oil prices above $100 a barrel in about a week.

But this week, renewed lockdowns in China, heightened recession fears and guidance that the Fed will continue with significant key rate hikes pushed oil prices down to the low $90s.

OPEC claims oil demand is strong and will remain so through the end of the year, but data suggests that demand in China, the world’s largest oil importer, has fallen due to coronavirus lockdowns and slowing factory activity. Inside, it suggests weak demand this summer.

Data from Refinitiv Oil Research cited by Reuters’ Asian Commodities and Energy columnist showed crude oil imports across Asia were estimated to have slowed in August from July, with imports from India, the world’s third-largest oil importer, also slowing. Decreased from the previous month. Clyde Russell.

OPEC+ will meet on 5 September for its regular monthly meeting to assess market conditions and decide how to proceed with the deal, which is currently expiring in December this year. increase. In theory, the group rolled back all the big cuts from May 2020 by the end of August, which is estimated to be 2.9 million barrels per day (bpd) below its overall target.

Now, the problems that cost millions of dollars are: Will there be new cuts, and will cuts help support a seemingly softening physical oil market?

According to a Bloomberg survey of 19 industry analysts, OPEC+ maintain oil production targets In October at the same level as in September when they meet next week.

In addition, Asian refiners said Saudi Arabia price cut With fuel demand lacking luster and competition with crude oil from other regions intensifying, we will turn our main grades to Asia in October. If Saudi Aramco actually cuts prices next week, it would acknowledge that demand for Middle Eastern crude in Asia, a major oil importer, is weakening.

OPEC claim Strong demand for oil. OPEC Secretary General Haitham Argais says global oil demand remains strong and will remain so until the end of the year Reuters Last month, he pointed out that the recent plunge was not a reflection of fundamentals, but was driven by fear.

But the latest data compiled by Refinitiv paints a different picture.

China’s imports in August are expected to be slightly higher than July arrivals, and overall June-August imports are about 1.5 million bpd below the average purchase rate in 2021, Reuters’ Russell said. pointing out.

China refinery crude oil throughput in July depressed It has reached its lowest level since the height of the pandemic in March 2020, amid unplanned facility shutdowns and reduced processing speeds for independent refiners due to lower refining margins. A new tax audit could be launched against private refiners of so-called teapots. slow down further Crude processing rates in world’s top oil importers, new this week lockdown Even some big cities are not supporting demand.

Oil prices fell to previous levels this week as slowing industrial activity threatened to destroy demand not only in China but also in Europe and the US. On August 21, Saudi Energy Minister Prince Abdulaziz bin Salman announced that OPEC+ ready to cut production Anytime, in any way, if you believe it will bring stability to the “schizophrenic” oil market.

If OPEC+ surprises most market observers and announces cuts on Sept. 5, it could support oil prices for some time. But the more likely outcome of Monday’s meeting could be a wait-and-see approach, a vague statement that it is ready to do whatever it takes to “stabilize” oil prices. I have.

Aside from where demand will go from here, there are two big uncertainties hanging over the market that could prompt OPEC+ to wait for more clarity before announcing possible production cuts. . these are, So-called Iran nuclear deal Oil supplies from Russia, a major member of OPEC+, will rebound significantly once the EU’s ban on Russian seaborne crude oil and fuel imports comes into full effect in early 2023 and countries announce price ceilings for Russian oil. It may drop from its current level of power.

By Tsvetana Paraskova for Oilprice.com

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