OPEC+ move to lead to downgrade in GCC forecasts

BUSINESS REPORTERMUSCAT, Oct 7The decision by Opec+ members to cut oil production from November by 2 million barrels per day, its largest cut since 2020, is aimed at putting a floor under oil prices and limit the risk of fiscal strain across oil producing countries, according to ICAEW (Institute of Chartered Accountants in England and Wales).

Although main countries are currently producing below their quota and actual oil supply is likely to be reduced by around 1 million barrels per day, the cuts are likely to see a significant tightening in the market in Q4 and reverse the recent downward trend in oil prices.

Scott Livermore, ICAEW Economic Adviser, and Chief Economist and Managing Director, Oxford Economics Middle East, explained: “There are significant uncertainties around both the demand and supply outlook and Opec+ is trying to get ahead of the possibility of weaker demand growth as the US and Europe slip into recession and the outlook for China remains clouded by its zero-Covid policy.

“Opec+ is trying to tread a fine line with oil prices – we don’t think it wants to push oil prices significantly above $100 per barrel and exacerbate inflationary issues in oil importing countries, but equally it is concerned the oil prices might continue their recent slide.

“Opec+ will hope the production cuts keep Brent crude oil prices comfortably and sustainably above $90 per barrel and probably stands ready to make further cuts if prices do resume a downward trend. We don’t think this will be necessary as we expect oil prices (Brent crude) to trade in the $90-100 per barrel range over the coming months.

“However, Opec+’s announcement will lead to a downgrade of forecasts for GDP growth next year across the GCC, who will shoulder the brunt of the actual production cuts.”