- OPEC+ ministers will meet to decide their next steps on oil production policy on June 4 in Vienna.
- They face a market shaken by supply volatility, demand uncertainty and a looming recession that could reduce transportation fuel consumption.
- Public sentiment has been mixed since Saudi Energy Minister Prince Abdulaziz bin Salman warned in late May that oil speculators could face further pain.
At the beginning of October, OPEC+ led by Saudi Arabia and Russia agreed to cut production by 2 million barrels per day from November.
Vladimir Simicek |: Afp |: Getty Images:
The OPEC+ bloc of oil producers will decide the next steps in production policy over the weekend, as crude prices reflect an ongoing battle between supply-demand fundamentals and broader macroeconomic concerns.
After meeting remotely during the Covid-19 pandemic, OPEC+ has returned to face-to-face meetings and will meet in Vienna on June 4. OPEC ministers are meeting for a separate meeting that is unlikely to discuss output on June 3.
Ministers face an oil market reeling from supply volatility, demand uncertainty and a looming recession that could reduce transport fuel consumption. Since October, OPEC+, a 23-member bloc including heavyweights Russia and Saudi Arabia, has cut output by 2 million barrels a day in an effort to combat lower demand. Some members also announced additional voluntary cuts of 1.6 million barrels per day in April.
Members of the group are expected to agree on their individual positions and proposals in the 24 to 48 hours before the meeting, some OPEC+ delegates told CNBC on condition of anonymity, while public comments have so far been mixed.
On May 23, Saudi Energy Minister Prince Abdulaziz bin Salman warned oil market speculators that they could face further pain, as some read in comments that further supply cuts could be on the cards.
“I continue to advise [speculators] that they will be excited. They did it in April. I don’t have to show my cards, I don’t [a] poker player … but I would just tell them to be careful,” he said at the time.
Russian Deputy Prime Minister Alexander Novak later said he did not expect any further action from the OPEC+ meeting, but then said his comments had been misinterpreted as downplaying production cuts, Russian state news agency Tass reported.
Russia and Saudi Arabia have been united in their public stance on OPEC+ since the March 2020 dispute that led to the month-long dissolution of their oil partnership and the ensuing price war.
Moscow and Riyadh later patched up ties through a new OPEC+ deal to respond to a drop in demand caused by the Covid-19 pandemic, and they have been on the same page on OPEC+ issues ever since. Shrugging off a public perception of a rift, Saudi Foreign Minister Prince Faisal bin Farhan al-Saud and his Russian counterpart Sergey Lavrov met on Thursday on the sidelines of the BRICS summit in Cape Town.
The two sides reviewed cooperation between their countries and “discussed ways to strengthen and develop them in all areas, as well as consolidate bilateral and multilateral actions.” according to the Saudi Ministry of Foreign Affairs.
Two OPEC+ delegates, who spoke on condition of anonymity because of the meeting’s market sensitivity, told CNBC that further output cuts this weekend are unlikely. One noted that this will remain so as long as demand remains low in China, where the recovery has not met expectations as a result of the easing of strict Covid-19 restrictions.
A third source said OPEC+, which prioritizes the state of global inventories over direct prices, would be comfortable with futures above $75 a barrel, while a fourth estimated around $70-80 a barrel.
August Brent futures were trading at $75.70 a barrel at 10:24 a.m. in London, up $1.42 a barrel on Thursday.
The OPEC+ group is not “tracking” and is seeking a “balanced market,” a fourth delegate told CNBC, stressing that the bloc should continue with a “precautionary” production strategy. The deep cuts also risk drawing the ire of the US again, as Washington has historically criticized supply cuts that squeeze consumer households.
Analysts at Goldman Sachs expect OPEC+ to keep output unchanged this weekend. However, they said in a note on Wednesday that they see a “substantial 35% subjective probability” of further OPEC cuts, as oil prices are “clearly below our OPEC estimate of $80-85/bbl.” Very low position, the determination of Saudi Arabia. not to give speculators free reign, and the decision to meet in person also suggests that deeper cuts are likely to be considered.”
OPEC+ has been in stormy waters for the better part of the year. Oil markets have historically been driven by physical supply and demand fundamentals, increasingly overshadowed by broader macroeconomic concerns about high fuel consumption inflation, strengthening interest rates and the spring collapse of several US and European banks.
OPEC+ delegates also said the group had been watching talks over the US debt ceiling as President Joe Biden and House Speaker Kevin McCarthy’s proposal went through several rounds of debate and voting in an effort to keep the world’s largest economy from defaulting on its bills.
“The impact of higher oil prices on the global economy will weigh heavily on ministers’ minds,” Jorge Leon, senior vice president of oil market research at Rystad Energy, said in a note on Thursday, adding that OPEC+ could keep output as a precautionary measure. . Ministers may therefore take a wait-and-see approach and delay any action. Demand forecasts remain tepid at best, so maintaining current output may be the wisest course of action.”
Supply is also in question, given the inadvertent declines.
About 450,000 barrels per day of northern Iraq’s exports have been frozen because of a legal dispute between Baghdad, Ankara and the Kurdistan Regional Government. Nigeria, normally West Africa’s biggest oil producer, self-reported April crude output of just 999,000 bpd after disruptions, according to OPEC’s May oil market report.
Meanwhile, the true extent of Russian output losses remains unclear as ships carrying Moscow oil turn off satellite tracking and Russia looks to move its customers further east.
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