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Fitch: There may be a supply gap in the oil market

The decision to cut production by OPEC+ countries is expected to create a supply deficit in the oil market in the second half of the year, and to have an upward effect on prices in the short term.

Fitch Ratings reported that the decision of OPEC+ group member countries to cut production by 1.2 million barrels a day from May until the end of the year may support prices in the short term, but may create a supply gap in the market in the second half of the year, especially due to the recovery in demand in China.

According to the analysis of Fitch Ratings on the effects of the oil production cut decision announced on Sunday by the member countries of the OPEC+ group, the decision in question caused confusion in the market.

Although the barrel price of Brent oil has been below $80 despite the sanctions in recent days, it rose to $85 per barrel on April 3 after the decision to cut production.

In the oil markets, which experienced a “moderate oversupply” in the first quarter of this year due to the production cut decision, the possibility of a supply deficit increased in the second half of the year due to the recovery in demand in China.

Demand growth is expected to be partially offset by an increase in oil production by 1.7 million barrels per day in North and South America, while the price of Brent oil is expected to hover around $85 per barrel this year and then decline.

It is estimated that the decision to cut oil production will have a short-term impact on oil prices.

OPEC+ group led by Saudi Arabia and Russia, at the 48th Joint Ministerial Monitoring Committee (JMMC) Meeting held on Monday, confirmed that in addition to the 2 million barrels per day production cut that has continued since October, some countries have decided to make voluntary cuts of approximately 1.6 million barrels per day as of May.

In the statement made after the meeting, it was stated that as of May, Saudi Arabia will cut 500 thousand barrels per day, Iraq will cut 211,000 barrels, United Arab Emirates will cut 144 thousand barrels, Kuwait will cut 128 thousand barrels, Kazakhstan will cut 78 thousand barrels, Algeria will cut 48 thousand barrels, Oman will cut 40 thousand barrels and Gabon will cut 8 thousand barrels. It was noted that Russia extended its decision to cut production of 500 thousand barrels per day, announced in February, until the end of the year.

Source: Trthaber / Prepared by Irem Yildiz

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