Opec+ has been withholding supplies for almost two years to prop up crude prices by staving off a surplus threatened by burgeoning American output. Their intervention has had some success, pushing the market into an expected deficit this quarter and stabilising a source of vital revenue for the group
Opec+ delegates expect the group’s monitoring session next month to be routine, making no changes to plans for a supply hike starting in the fourth quarter.
The group led by Saudi Arabia and Russia agreed last month to begin gradually restoring roughly 2.2mn barrels a day of halted crude output from October. When prices immediately slumped, officials stressed that a committee due to gather on August 1 could postpone the hike if necessary.
The market has since rebounded, with Brent futures trading back near $85 a barrel, easing the group’s sense of urgency. There are no plans for the Joint Ministerial Monitoring Committee to issue any recommendations on output policy, said the delegates, who asked not to be identified as the talks are private.
That would still leave the Organisation of Petroleum Exporting Countries and its allies with several more weeks to consider whether to proceed with the supply boost — in theory up until cargo allocations need to be set for customers in early September. This would be in keeping with previous decisions by the eight Opec+ members involved in the so-called “voluntary” cutbacks.
“Opec+ will most likely wait and see if the much anticipated demand increase this summer materialises before taking any decision on production,” said Jorge Leon, senior vice-president at consultant Rystad Energy AS.
The coalition has been withholding supplies for almost two years to prop up crude prices by staving off a surplus threatened by burgeoning American output. Their intervention has had some success, pushing the market into an expected deficit this quarter and stabilising a source of vital revenue for the group.
Some members, such as the United Arab Emirates, have been eager to return the shuttered output and deploy new production capacity. Others, such as Russia, Iraq and Kazakhstan, have dragged their heels in delivering agreed cuts while they seek to maximise revenue.
Russian President Vladimir Putin and Saudi Crown Prince Mohamed bin Salman spoke on Wednesday about Opec+ co-operation, the Kremlin said in a statement. Moscow has pledged to make up for failing to deliver its share of cutbacks with additional compensatory curbs, but has yet to provide full details of how it will do this.
“The consensus is that, if demand increases in the second half of this year, Opec+ would have room to start unwinding cuts starting in October,” said Rystad’s Leon.
Yet there are still reasons why the group may exercise its option to “pause or reverse” the scheduled supply increase.
While global inventories should deplete at a steady pace this quarter, markets are likely to slacken considerably after that as China’s demand growth cools, according to the International Energy Agency. Stockpiles are set to stabilise in the fourth quarter and supply could tip into surplus next year, even if Opec+ shelves the planned hike.
“I still don’t think the market will be strong enough for long enough to substantiate significant Opec volumes,” said Aldo Spanjer, commodities strategist at BNP Paribas.
