Global Courant
Led by Saudi Arabia and Russia, OPEC+ agreed in early October to cut production by 2 million barrels per day from November.
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The OPEC+ alliance of oil producers will decide on further steps in production policy over the weekend as crude oil prices reflect an ongoing battle between fundamental supply and demand 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.
Ministers face an oil market plagued by supply volatility, demand uncertainty and a future recession, which could depress transport fuel consumption. Since October, OPEC+, an alliance with 23 members including heavyweights Russia and Saudi Arabia, has cut production by 2 million barrels per day to counter lower demand. Some members also announced additional voluntary cuts totaling 1.6 million barrels per day in April.
Group members are expected to pitch their individual views and proposals in the 24-48 hours before the meeting, some OPEC+ delegates told CNBC, speaking on the condition of anonymity — while public comments have so far been contradictory.
On May 23, Saudi Energy Minister Prince Abdulaziz bin Salman warned oil market speculators that they could suffer even more pain in the future, in comments that some have read as hints that further supply cuts may be in the offing. .
“I keep advising (speculators) they’ll be ouch. They did ouch in April. I don’t have to show my cards, I’m not (a) poker player… but I’d just tell them, watch out,” he said at the time.
Russia’s Deputy Prime Minister Alexander Novak later indicated that he expected no further steps from the OPEC+ meeting, but then said his remarks were misinterpreted as downplaying a production cut. This is reported by the Russian state news agency Tass.
Russia and Saudi Arabia have been united in their public OPEC+ stance since a March 2020 dispute that led to the month-long dissolution of their oil partnership and a resulting price war.
Moscow and Riyadh later re-established ties through a new OPEC+ deal to respond to a fall in demand due to the Covid-19 pandemic – and have remained level-headed on OPEC+ matters ever since. Saudi Foreign Minister Prince Faisal bin Farhan al-Saud and his Russian counterpart Sergey Lavrov met on Thursday on the sidelines of a BRICS summit in Cape Town, quashing perceptions of a public rift.
The two discussed cooperation between their countries and “ways to strengthen and develop them in all areas, in addition to discussing the consolidation of bilateral and multilateral action”, This is reported by the Saudi Ministry of Foreign Affairs.
Two OPEC+ delegates, who declined to be named due to the market sensitivity of the meeting, told CNBC that further production cuts this weekend were unlikely. One noted that this will remain the case unless demand remains low in China, where the recovery has fallen short of expectations following the lifting of strict Covid-19 restrictions.
A third source said OPEC+, which prioritizes the state of global supplies over outright prices, would be comfortable with futures above $75 a barrel, while a fourth estimated it would be near $70-80 would be per barrel.
Brent futures due in August traded at 10:24 a.m. in London at $75.70 a barrel, up $1.42 a barrel from Thursday’s settlement.
The OPEC+ group is not “past peaks” and is aiming for a “balanced market,” the fourth delegate told CNBC, emphasizing that the alliance must continue to follow a “precautionary” production strategy. Deep austerity also threatens to rekindle US anger, as Washington has historically criticized supply cuts that put pressure on consuming households.
“Just wait”?
Goldman Sachs analysts expect OPEC+ to hold production unchanged this weekend. However, they said in a note on Wednesday that they see a “significant 35% subjective probability” of further OPEC cuts as oil prices are “well below our $80-85/bbl estimate of the OPEC put. Very low positioning , the Saudi determination not to let speculators run wild, and the decision to meet in person also suggests that deeper cuts are likely to be discussed.”
OPEC+ has waded through stormy waters for most of the year. Oil markets have traditionally been driven by physical supply and demand fundamentals, which have been increasingly overshadowed by broader macroeconomic concerns about the fuel consumption of high inflation, rising interest rates and the collapse of several US and European banks in the spring.
OPEC+ delegates also said the group had followed US debt ceiling negotiations as the proposal from President Joe Biden and House Speaker Kevin McCarthy went through several debate and voting stages in a bid to prevent the world’s largest economy from failing to pay its bills. would pay.
“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 Thursday note, adding that OPEC+ would cut production as a precaution. can maintain. . “Ministers could therefore take a wait-and-see approach and take no action. Demand forecasts remain lukewarm at best, so maintaining current output could be the most prudent course of action.”
The supply is also under discussion, given the involuntary declines.
About 450,000 barrels a day of northern Iraq’s exports were frozen amid a legal dispute between Baghdad, Ankara and the Kurdistan regional government. Nigeria, typically West Africa’s largest oil producer, self-reported crude oil production in April at just 999,000 barrels per day after disruptions, according to OPEC’s Monthly Oil Market Report for May.
Meanwhile, the true magnitude of Russia’s production losses remains unclear as ships carrying Moscow’s crude oil turn off their satellite tracking system and Russia looks to move its customer base further east.
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