Despite OPEC+ Production Increase Agreement, "WTI Average Price Expected at $45-50 Next Year"

"Limited Impact on Oil Prices Even with Increased Supply"

[Asia Economy Reporter Minji Lee] As OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) and an alliance of 10 non-member countries including Russia) decided to reduce the scale of production cuts starting next year, opinions have emerged that the average price of West Texas Intermediate (WTI) crude oil next year will be around $45 to $50 per barrel.

According to the related industry on the 6th, OPEC+ agreed at a meeting on the 3rd to increase crude oil supply by 500,000 barrels per day starting January next year. Accordingly, from January next year, OPEC+ will reduce the scale of production cuts to 7.2 million barrels. In addition, it announced that it will hold monthly meetings to monitor market conditions and decide on additional production increases.

In the oil market, there was a consensus to extend the crude oil production cut (7.7 million barrels per day) for 3 to 6 months, but this plan was scrapped as non-OPEC countries such as Russia and Kazakhstan opposed it at the meeting on the 1st. Instead, as an alternative, they seem to have agreed on a 500,000 barrel increase.

This production increase is seen as a measure reflecting the intention to support the downward price rigidity and stabilize the oil market. It is a measure to control the rapid rise in oil prices driven by expectations for the COVID-19 vaccine. In addition, it appears to include the intention of some oil-producing countries such as Russia to curb the benefits that U.S. oil companies gain from rising oil prices.

Jinyoung Choi, a researcher at Ebest Investment & Securities, explained, “OPEC+ commonly remains cautious of U.S. shale companies despite their bankruptcies,” adding, “Because of this, they likely recognize the need to adjust the pace of production cuts.”

Through this agreement, OPEC+ crude oil supply will increase by 500,000 barrels starting January next year. However, the decline in oil prices due to the supply increase is expected to be limited. Crude oil demand next year is expected to increase by 6.7% to 99.26 million barrels compared to this year.

Youngchan Baek, a researcher at KB Securities, said, “This supply increase is only about 0.5% of demand, so it will not have a significant impact,” adding, “The limited increase in U.S. oil rigs is tightening the supply-demand balance.” U.S. crude oil production next year is estimated to decrease by 8% to 10.35 million barrels, marking a reduction for the second consecutive year.

The securities industry expects the average WTI price next year to be formed at around $45 to $50. Although oil prices will gradually rise, it is forecasted that a steep upward curve will be difficult. Subin Shim, a researcher at Kiwoom Securities, said, “If oil prices begin to stabilize in the high $40s, uncertainty about whether OPEC+ will continue its production cut policy may increase again,” adding, “This will be a factor that controls the speed of oil price increases next year.”

Byungjin Hwang, a researcher at NH Investment & Securities, said, “If demand concerns ease amid the COVID-19 aftermath, attempts to normalize WTI prices in the $50 range per barrel will proceed quickly,” adding, “However, the time when prices exceed $50 will likely be in the second half of the year when expectations for the complete end of COVID-19 are high.”

This content was produced with the assistance of AI translation services.