Gibson Shipbrokers Ltd: Weekly Tanker Market Report - Making the Cut
Gibson Shipbrokers Ltd: Weekly Tanker Market Report - Making the Cut
Last week, OPEC+ agreed to make production cuts of 2 mbd for the next 14 months from November 2022 to December 2023, representing a 2% reduction in global oil supply. This stemmed from a concern that the oil market is now out of balance which has put downward pressure on oil prices. Meanwhile a stronger dollar and a deteriorating economic outlook are impacting the demand outlook and thus reinforcing the pressure on oil prices. Crude prices rose on the news of OPEC’s decision but have yet to breach the $100/bbl mark due to the broader demand concerns outweighing the reduction in supply. The question now arises as to how effective these cuts will be in supporting oil prices and what impact this could have on the tanker market. In addition, it also raises further questions about the future of OPEC relations with leading oil consumers such as the US, following President Biden’s criticism of the plan and how this could accelerate the energy transition.
Under the new quotas, the OPEC 10 will be required to make a combined cut of 1.273 mbd, whilst associate members will cut up to 727 kbd. The largest of these cuts will come from Saudi Arabia and Russia who will both be required to reduce production by 526 kbd respectivly; as well as Iraq by 220 kbd and the UAE by 160 kbd. Other members will make varying levels of much smaller cuts meaning the bulk of these cuts will come from the Middle East (55%) and Russia (26%). These producers have adequate capacity to make such production cuts given their steady increases in production in line with previous OPEC+ policy since April 2021. In contrast, Russia is a special case, where output has been falling since April 2022 and is currently producing below its output quota.
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