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MIDDLE EAST Energy Review
Saudi Arabia’s surprise new production cut, OPEC were the highlights of the oil and gas sector in the Middle East in the past month.
OPEC+ extends cuts through 2024
The OPEC+ group agreed in early June to extend the ongoing crude oil production cuts until the end of 2024 and tweaked the quotas for African OPEC members Nigeria and Angola, who have long been underperforming compared to their quotas. One of the biggest producers in the Middle East, the United Arab Emirates (UAE), got its output quota raised by around 200,000 barrels per day (bpd) for 2024, to 3.219 million bpd. The production level for Russia, which was at par with the Saudi quota until June, was lowered to 9.828 million bpd in view of its pledge to cut 500,000 bpd and the effect of the Western sanctions on Russia’s oil industry. Saudi Arabia will have a quota of 10.478 million bpd for next year, the OPEC+ ministerial meeting decided.
The OPEC+ meeting also decided to grant the Joint Ministerial Monitoring Committee (JMMC) the authority to hold additional meetings, or to request an OPEC and non-OPEC Ministerial Meeting at any time to address market developments, whenever deemed necessary.
Saudi Arabia surprises the market again
While the OPEC+ alliance collectively decided to extend the current cuts – originally planned to end in December 2023 – into next year, the biggest producer in OPEC and the world’s largest crude oil exporter, Saudi Arabia, announced a unilateral voluntary cut of 1 million bpd for July 2023, “to support the market.” The Saudi cut could be extended beyond July, Saudi Energy Minister Prince Abdulaziz bin Salman said.
After the OPEC+ meeting in Vienna on June 4, Prince Abdulaziz bin Salman said, referring to Russia, “We discussed with Russia the issue of its production and asked it to clarify its data, and we have strengthened the concept of transparency with Russia about its oil production figures.”
Some analysts saw in the unilateral decision from Saudi Arabia a reluctance from other OPEC and OPEC+ producers to continue cutting production in order to support market balances and oil prices.
Neither Saudi Arabia nor OPEC admit they are aiming at a specific price of oil, but estimates from the International Monetary Fund (IMF)showed earlier this year that the Saudis needed at least $80 per barrel oil to balance their budget for 2023.
Between mid-April and the end of June, Brent oil prices lingered in the mid- to low$70s per barrel, due to concerns about the global economy and the possibility that recessions would depress oil demand while economic data out of China pointed to an uneven recovery.
The latest Saudi cut could also suggest that the Kingdom is worried about lower-thanexpected demand, some analysts say. Some traders and analysts have interpreted the proactive Saudi cut as an admission that demand may not be as strong as initially expected.
But others believe the production cut will tighten the market so much in the second half of the year that prices will rise toward the end of 2023 to above $80 per barrel, and even $90 and $100.
A day after the OPEC+ meeting and the surprise Saudi cut, the Kingdom surprised the market again by raising the official selling price (OSP) of its flagship crude grade Arab Light for July for Asia by $0.45 per barrel to a premium of $3.00 over the Oman/Dubai average, off which Middle East crude for Asia is priced.
The price hike from Saudi Arabia was unexpected; Asian refiners had expected lower prices for Arab Light in July in a Reuters poll. The poll, however, was carried out before the OPEC+ meeting at which Saudi Arabia said it would cut production in July.
OPEC Affirms Oil Demand Outlook Despite Higher Economic Uncertainty.
A week later, OPEC affirmed its forecast of global oil demand growth for 2023, but warned of increased economic uncertainties stemming from inflation and higher interest rates.
In its closely-watched Monthly Oil Market Report (MOMR) for June, OPEC said it expected global oil demand to grow by 2.35 million barrels per day (bpd) this year. The growth forecast was essentially unchanged from the 2.33 million bpd estimate in the previous month’s report.
Most of the oil demand growth will come from non-OECD economies, where oil demand is expected to rise by around 2.3 million bpd, while OECD oil demand will increase by only 50,000 bpd, OPEC said in the latest report.
The organisation kept its oil demand growth forecast for 2023 unchanged for a fourth straight month, but warned of higher risks for the global economy. Economic growth is expected at 2.6% this year, unchanged from the May report, but OPEC noted that “While economic activities have been steady so far in the 1H22, the global economy continues to navigate through uncertainties including high inflation, higher interest rates in the US and the Euro-zone, and high debt levels in many regions.”
“There are rising uncertainties regarding economic growth in 2H23 amid ongoing high inflation, already elevated key interest rates and tight labour markets,” OPEC said. “Moreover, it is still unclear as to how and when the geopolitical conflict in Eastern Europe might be resolved,” the cartel said, referring to the Russian invasion of Ukraine.
So far this year, the positive effects of China’s reopening have continued to support global economic growth, and the resilient US growth has also helped.
In the second half of 2023, oil demand in the non-OECD is forecast to grow on average by 2.2 million bpd year-on-year, with China remaining the largest contributor to demand growth, OPEC noted.
Upsides to the economic and oil demand growth could come from “an even strongerthan-anticipated rebound in China” as well as the US keeping the growth momentum and managing at the same time a soft landing after all the rate hikes, OPEC said.
“We discussed with Russia the issue of its production and asked it to clarify its data, and we have strengthened the concept of transparency with Russia about its oil production figures.”
“The agreement will be particularly beneficial to the field of hydrogen, which represents one of the most important future industries and underpins a greener economy,”
Middle East company deals
In company news, the United Arab Emirates’ Ministry of Industry and Advanced Technology (MoIAT) announced it had supported a strategic collaboration agreement between ADNOC, John Cockerill Hydrogen, and Strata Manufacturing, to manufacture electrolysers in the UAE for local use and for export.
“The agreement will be particularly beneficial to the field of hydrogen, which represents one of the most important future industries and underpins a greener economy,” said Omar Al Suwaidi, Undersecretary of the UAE’s Ministry of Industry and Advanced Technology.
In Qatar, state-owned firm QatarEnergy celebrated in early June the steel cutting of the first of its new generation of chartered LNG vessels to be constructed in a Korean shipyard. QatarEnergy decided in 2020 to enter into Ship Slot Reservation Agreements with three Korean shipyards: Samsung Heavy Industries, Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering. In 2022, QatarEnergy signed multiple Time Charter Parties with various shipowners, including affiliates of JP Morgan Asset Management, a fund investing in a wide array of transportation assets.
In late June 2023, QatarEnergy signed definitive agreements with China National Petroleum Corporation (CNPC) for the long-term supply of LNG to China and partnership in the North Field East LNG expansion project (NFE).
Under the agreements, QatarEnergy will deliver 4 million tons of LNG per annum from the NFE project to CNPC’s receiving terminals in China over a span of 27 years, which is the industry’s longest-term sales and purchase agreement. The two parties also signed a share sale and purchase agreement pursuant to which QatarEnergy will transfer to CNPC a 5% interest in the equivalent of one NFE train with a capacity of 8 million tons per annum. This transfer will see CNPC become a partner in the NFE project and will not affect the participating interests of any of the other shareholders in the project, the Qatari firm said.
