The Organization of Petroleum Exporting Countries (OPEC) and its allies agreed to deepen crude oil production cuts by additional 500,000 barrels per day (bpd) to 1.7m bpd, effective January 2020, from current 1.2m bpd.
Under the revised deal, Saudi Arabia’s output target will be reduced by 167,000 bpd, though the kingdom has voluntarily vowed additional cuts of some 400,000 bpd, with targeted production of 9.74m bpd in the first quarter (1Q) of 2020. This brings total OPEC production cuts to 2.1m bpd.
Meanwhile, Russia, the biggest of top 10 non-OPEC oil producers, will be scrapping 70,000 bpd from its production. OPEC and non-OPEC ministers of energy are also looking to conduct more short term consultations and refrain from pump-at-will policies and plan to meet on 4-6 March 2020 to review compliance.
Meanwhile, Beltone Financial downgraded its valuation in 2020 for oil GDP growth estimates in Saudi Arabia to 1.5% year over year (YoY) from 2.5% underpinned by the kingdom’s additional 400,000 cut which would result in a combined additional crude oil cuts of 567,000 bpd in 1Q20, and the country’s high compliance rate which stood at 231% in October 2019 and should remain above 100% in 1Q20.
As for Kuwait, they revise their crude oil production estimates to 2.68m bpd in 2020 from 2.71m bpd previously, but they maintain oil GDP growth expectations at 1.4% YoY as they don’t see a material impact on the fiscal and external fronts and expect higher oil prices to relatively offset the cut.
Similarly, their Macro outlook for UAE remains the same given that the compliance rate is already low at 65% as of October 2019.
In Egypt, Beltone analysts expect oil prices to temporarily reflect the decision in December 2019, rising to an average of $65/barrel up from $62.7/barrel a month earlier. They do not expect a short-term impact on prices, however, to affect fiscal year 2019/20 oil price average estimate of $64.2/barrel. They noted that the year to date average price is $61.7/barrel.
They see that Brent crude oil prices are key to Egypt’s inflation outlook, especially after the implementation of automatic fuel indexation mechanism. They reiterate their view that domestic petrol prices will remain unchanged upon the second quarterly review, slated for the end of December. This comes on the back of the appreciation of the Egyptian Pound by 2.2% quarter over quarter in 4Q19, down from 7% in 3Q19, before gaining momentum in 1Q20 from the base effect subsidies, according to Beltone.