We see this uncertainty as linked to the Saudi cuts. Russia has indicated at various times that it could cut production as low as 9.3 million barrels per day for varying timeframes. The OPEC+ quota is currently 9.828 million barrels per day. Next, OPEC+ openly acknowledged the uncertainty over the amount of production that Russia is supplying the market presently. In contrast, the UAE's quota was upped about 200,000 barrels per day, more closely hewing to actual production levels. The reduced quotas more closely align actual production with quotas, meaning future production announcements will be more closely linked to actual production changes versus us having to interpret the level of shadow barrels. All four countries had been unable to meet their quotas for some time due to political, investment, or reservoir-related challenges. In a move that demonstrates Saudi Arabia's growing consolidation of influence within the cartel, several OPEC members including Angola, Congo, Nigeria, and Guinea had their baseline quotas reduced by a total of about 625,000 barrels per day. OPEC+ is also somewhat emboldened to cut production knowing that U.S. Essentially, the cut and extension threats are widening the gap further in what we already saw as an undersupplied oil market in the second half of 2023 from our April observations. Comments from Saudi Arabia ahead of the meeting have been unusually pointed and focused heavily on prices and oil short sellers, indicating in our view, the country is under growing pressure to keep prices high (above $80 a barrel) to ensure enough revenue to fund planned social spending over the next few years. Thus, the decline in price has likely frustrated the Saudis. At the time, we felt, as likely OPEC+ did, that the cuts would be enough to support higher oil prices in the near term with a potential spike to $100 a barrel remaining a possibility in the second half of the year. Brent prices have fallen about 10% since the start of April to about $76 a barrel currently. With the earlier cuts only beginning in May and having a limited impact so far, we see the latest announcement more about defending oil prices with the threat of further production cut extensions. We'd flag Equitrans and ExxonMobil as undervalued. oil and gas coverage are unchanged following the announcement. Our fair value estimates and moat ratings for our U.S. The previously announced 1.6 million barrels per day cut (or about 600,000-700,000 barrels per day allowing for quota underproduction) by OPEC cut in April has now been extended through the end of 2024 from through the end of 2023. Saudi Arabia would cut 1 million barrels per day production cut in July 2023 for one month, though it can be extended, which we consider a realistic cut, while the remaining 400,000 net barrels are aligning quotas to actual production levels, and we'd consider paper barrels. On June 4, OPEC+ announced about 1.4 million barrels per day of production cuts. OPEC+ Defends Oil Prices With New Production Cut While Consolidating Influence Around the Saudisīy Stephen Ellis | Morningstar Research Services LLC | 6-06-23 News and Research for Dividend Select Portfolio Holdings He holds a Bachelor's degree in finance form DePaul University, and heĪlso holds the Chartered Financial Analyst ® designation. Prior to that he served as Director of Research and as an equity analyst at Perritt Capital, and as a portfolio Before joining Morningstar Investment Management, he was anĮquity portfolio manager with Perritt Capital, and as a portfolio manager with Perritt Capital Management. Team as a portfolio manager in August 2018. George Metrou is an equity portfolio manager for Mornigstar Investment Management LLC. ![]() He holds a bachelor's degree in biology from Skidmore CollegeĪnd a master's degree in biology from the University of Illinois at Springfield. ![]() He was the co-inventor of Morningstar's first investment advice The strategy seeks firms with wide or narrow moats that we believeĪre in a stronger competitive position than their peers and that are trading at a reasonable price.ĭavid served in several senior research and product development roles and was part of the editorial team ![]() Takes a concentrated, best-ideas approach when investing in select common stocks of dividend-payingĬompanies and other securities. account invested in accordance with a strategy that David Harrell is the editor of Morningstar DividendInvestor, a monthly newsletter that highlightsĪctivities pertaining to a Morningstar, Inc.
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