OPEC+ countries will decide today on the volume of oil production. It may affect the commodity quotations, the prices of which are significantly responsible for inflation and, consequently, for the actions of central banks.
At the beginning of August, the price of a barrel of WTI crude oil fell to around $94, such levels were last seen before Russia's invasion of Ukraine. Volatility in the oil market may remain relatively high ahead of the OPEC+ decision on production volumes. The members of the cartel seem to leave production unchanged. There could be two reasons for that. The first is that probably the producers do not have any free capacity that would allow for a significant increase in production. The second is that OPEC+ members can see the world is headed for a slowdown and recession. The demand for oil could fall, in which case, an increase in production would be unprofitable.
Despite the recent visit of U.S. President Joe Biden to Saudi Arabia and OPEC's call to increase production and oil extraction, it seems that neither the Arab countries nor the other members of the cartel will be interested in this. Moreover, some countries are struggling to maintain their declared pace of production, let alone increasing it. Increasing the supply of crude seems unlikely. Therefore, one of the possible scenarios is an attempt to stabilize prices in the range of $90-110 per barrel. This would allow producers to make up for the covid losses associated with lockdowns, but also would not significantly inhibit demand.
According to a report by the IEA, global oil demand is expected to reach 101.6 million barrels per day in 2023, which would exceed pre-pandemic levels. According to the IEA, higher prices and weaker economic growth prospects could inhibit consumption, but the recovery of the Chinese economy after the lockdowns could lead to increase in demand next year with consumption growth forecast from 1.8 million barrels per day in 2022 to 2.2 million barrels in 2023. Unlike in 2022, when OECD countries were leading oil demand growth, 80 percent of non-OECD countries are expected to increase demand in 2023, according to IEA data.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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