New normal for Brent crude price may be $ 75-80 a barrel

New Delhi, April 20 The new normal for Brent crude price may be around Saudi Arabia's fiscal break-even crude price of USD 75-80 a barrel, JM Financial Institutional Securities said in a report.

IEA expects the surprise, voluntary output cut of 1.66mmbpd (from May'23 till end-CY'23) by OPEC+ to push the oil market into deficit in 2HCY23; this deficit will be aided by continued expectation of CY23 global oil demand growing by 2.0mmbpd on likely rebound in China.

"We believe the OPEC+ output cut decision was a reiteration of its willingness to support Brent crude price around USD 75-80/bbl, which is the fiscal break-even crude price needed by Saudi Arabia," the report said.

OPEC+ pricing power has got strengthened over the past 2-3 years due to: a) US oil production continuing to be lower at 12.3mmbpd vs. pre-Covid peak of 13.1mmbpd as US shale investors have become disciplined in capital investment; and b) OPEC+ having shown strong ability to cut output by 10mmbpd during early CY20 to offset the 10 per cent decline in global oil demand post-Covid.

OPEC+ still has enough headroom to cut output by another 4-5mmbpd if the need arises to offset any macro-related risk to global oil demand growth.

Hence, we believe the new normal for Brent crude price may be around Saudi Arabia's fiscal break-even crude price of USD 75-80/bbl except in the event of a global macro shock, the report said.

This is a departure from the pre-Covid normal Brent crude price of around USD 60-65/bbl, which was driven by marginal cost of US shale oil production.