The OPEC+ alliance of oil producers will decide on further production policy steps over the weekend, as crude prices reflect an ongoing struggle between supply-demand fundamentals and broader macroeconomic concerns.
After convening remotely throughout the Covid-19 pandemic, OPEC+ has returned to in-person meetings and will gather in Vienna on June 4. The OPEC ministers gather for a separate meeting unlikely to address output on June 3.
Ministers face an oil market rattled by supply volatility, demand uncertainty, and a prospective recession, which could throttle transport fuel consumption. Since October, OPEC+ — a 23-member alliance including heavyweights Russia and Saudi Arabia — has lowered output by 2 million barrels daily to combat lower demand. Some members announced additional voluntary cuts totaling 1.6 million barrels per day in April.
Group members are expected to coagulate their positions and proposals 24-48 hours before the meeting, some OPEC+ delegates told CNBC, speaking anonymously — while public comments so far have been conflicting.
On May 23, Saudi energy minister Prince Abdulaziz bin Salman warned oil market speculators they could face further pain ahead, in comments some have read as hinting further supply cuts could be in the cards.
“I keep advising [speculators] that they will be ouching. They did ouch in April. I don’t have to show my cards; I’m not [a] poker player … but I would 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 comments were misinterpreted as downplaying an output cut, according to 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 one-month dissolution of their oil partnership and an ensuing price war.
Moscow and Riyadh later mended ties through a new OPEC+ agreement to respond to a demand plunge driven by the Covid-19 pandemic — and have remained like-minded on OPEC+ matters since. Voiding the perception of a public rift, Saudi Foreign Minister Prince Faisal bin Farhan al-Saud and his Russian counterpart Sergey Lavrov on Thursday met on the sidelines of a BRICS summit in Cape Town.
The two reviewed the cooperation between their countries and “ways to strengthen & develop them in all fields, in addition to discussing the consolidation of bilateral & multilateral action,” according to the Saudi foreign ministry.
Two OPEC+ delegates, who did not want to be named due to the market sensitivity of the meeting, told CNBC that further output cuts were unlikely this weekend. One noted that this would remain the case unless demand stays low in China — where recovery has fallen short of expectations in the wake of shedding strict Covid-19 restrictions.
A third source said that OPEC+, which prioritizes the state of global inventories over outright prices, would be comfortable with futures above $75 per barrel, while a fourth estimated near $70-80 per barrel.
Brent futures with August expiry were trading at $75.70 per barrel at 10:24 a.m. in London, up $1.42 per barrel from the Thursday settlement.
The OPEC+ group isn’t “after spikes” and seeks a “balanced market,” the fourth delegate told CNBC, stressing that the alliance must continue to strike a “precautionary” production strategy. Deep cuts also risk re-attracting U.S. ire, as Washington has historically criticized supply reductions that pile strain on consuming households.