Crude oil prices are at risk of plummeting to as low as $40 per barrel if the Organization of Petroleum Exporting Countries (OPEC) and Russia fail to make larger cuts in their production volumes, according to Norway-based independent energy research and consulting firm Rystad Energy.
Saudi Arabia-spearheaded OPEC and Russia-led non-OPEC will convene in Vienna on Thursday and Friday to raise low oil prices. However, if the group, dubbed as OPEC+, fails to make deeper cuts to their output levels, they could face lower prices, Rystad Energy warned.
"If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s next year for a shorter period," Bjornar Tonhaugen, head of oil market research at Rystad Energy, said in a statement on Tuesday.
OPEC+ had agreed in December 2018 to lower their collective oil production by 1.2 million barrels per day (bpd) starting from January 2019, but that did not prevent oil prices coming under pressure from oversupply in the global oil market.
Now the group is faced with the decision to either extend this deal until mid-2020, or make additional cuts in their total production starting from Jan. 1.
"We have a clear message to the OPEC+ countries: A ‘roll-over’ of the current production agreement is not enough to preserve a balanced market and ensure a stable oil price environment in 2020," Tonhaugen said in the statement.
"In order to ensure a balanced market, our research indicates that OPEC would need to reduce crude production to 28.9 million bpd -- a drop of 0.8 million bpd from the level seen in the fourth quarter of 2019-levels," he added.
The global oil market is anticipated to have an oversupply of 0.8 million bpd during the first half of 2020, according to a forecast by Rystad Energy.
As for the price of crude oil, a 1 million bpd surplus in the market could cause a price decline of around 5% per month, which implies a potential drop of 30% in prices over six months, it added.
Rystad Energy said in a separate statement on Wednesday the record high production growth from non-OPEC countries in tight oil and offshore production has put some significant pressure on OPEC’s ability to balance the oil market.
"OPEC will need to extend and deepen production cuts if they have any hope of supporting the oil price in the near-term," Espen Erlingsen, head of upstream research at Rystad Energy, said in Wednesday's statement.
The U.S. is expected to lead the way among non-OPEC countries in year-on-year oil production growth with an estimated 1.09 million bpd in 2020, compared to this year.
While Norway ranks second on the list with 527,000 bpd in oil output growth, Brazil is forecast to increase its oil production by 459,000 bpd next year compared to 2019.
By Ovunc Kutlu in Vienna