Oil price forecasts raised as OPEC cuts seen offsetting China gloom

Bengaluru: Analysts have raised their 2023 oil price forecasts for the first time in four months with OPEC+ output cuts expected to keep supply tight, offsetting risks to demand from a stalling economic recovery in China, a Reuters poll showed.

A survey of 37 economists and analysts forecast Brent crude would average $82.45 a barrel in 2023, up from July's $81.95 consensus. Brent has averaged around $80.6 a barrel so far this year.

West Texas Intermediate U.S. crude is seen averaging $77.83 a barrel this year, above the previous month's $77.20 forecast. "Though chances of a deep recession in the West have taken a backseat, the China demand boost expected in the second half of 2023 is probably off the table as well," Suvro Sarkar, energy sector team lead at DBS Bank, said.

Maintaining oil prices at current levels will require a significant level of supply discipline from the Organization of the Petroleum Exporting Countries and allies led by Russia (OPEC+), Sarkar added.

Most analysts polled by Reuters expect top exporter Saudi Arabia to extend its 1 million barrel-per-day voluntary supply cut, which is in addition to the cuts put in place by the wider OPEC+ group.

That could see global benchmark Brent prices climbing to an average of $85.65 a barrel in the fourth quarter, the poll showed.

"We forecast that the market will fall into significant deficit in the third and fourth quarters of 2023," said Matt Sherwood, Lead Commodities Editor at the Economist Intelligence Unit.

After tapping strategic petroleum reserves, many governments will need to rebuild stocks, adding to upward pressure on demand, Sherwood added.

Global crude demand is expected to increase by up to 1.7 million barrels per day in 2023, the poll showed.

Most analysts expect the bulk of oil demand growth this year and next will come from Asia and primarily China despite its weakening economy, although some sounded a note of caution.

"China is key for oil demand growth projections," said Julius Baer analyst Norbert Rücker. "Given the persisting economic challenges and the anecdotal evidence of amply filled domestic oil storage, we believe that its contribution to growth remains overestimated."

Meanwhile, oil prices retreated from highs hit earlier on Thursday as data showed rises in production in OPEC+ countries despite a planned production cut of 1 million barrels per day (bpd).

Brent crude futures for October, expiring on Thursday, were at $86.69 a barrel at 1602 GMT, up 0.89 percent, or 76 cents, after rising more than $1 earlier in the session. The more active November contract was up 56 cents, or 0.66 percent, at $85.80.

US West Texas Intermediate crude futures for October was up 65 cents, or 0.8 percent, at $82.28 a barrel.

Markets seemed to look at higher-than-expected OPEC+ production as trading moved to the middle of the day, said Phil Flynn, an analyst at Price Futures Group. "I think it took some of the wind out of their sails," Flynn said.

Earlier on Thursday, Flynn said, the markets were reacting to U.S. government data on Wednesday that showed the country's crude inventories fell by a larger-than-expected 10.6 million barrels last week, depleted by high exports and refinery runs.

Analysts expect Saudi Arabia to extend a voluntary oil production cut of 1 million bpd into October,adding to cuts put in place by the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a grouping known as OPEC+.

"With Brent prices having stalled in the mid-$80s ... the prospect of those Saudi barrels returning to the market any time soon looks slim and the impact is increasingly being felt across the world as commercial stock levels of crude and fuel products continue to drop," said Ole Hansen, a Saxo Bank analyst.

U.S. consumer spending increased 0.8% last month, the Commerce Department reported on Thursday, but slowing inflation strengthened expectations the Federal Reserve would keep interest rates unchanged next month.

The US central bank can end its cycle of rate increases if the labor market and economic growth continue to slow at the current gradual pace, Eric Rosengren, the former president of the Boston Fed, said on Wednesday.

Weak Chinese factory data limited further gains, however.

China's manufacturing activity shrank again in August, an official factory survey showed on Thursday, fuelling concerns about weakness in the world's second-biggest economy.

China's official purchasing managers' index (PMI) rose to 49.7 from 49.3 in July, the National Bureau of Statistics said, but it remained below the 50-point level. A reading above 50 points represents expansion from the previous month.

The U.S. government on Wednesday revised down its gross domestic product growth for the second quarter to 2.1 percent, from the 2.4 percent pace reported last month, and data released separately showed private payroll growth slowed significantly in August.