OPEC+ prepares for weekend meeting after Saudi warns speculators to ‘be careful’

The OPEC+ alliance of oil producers will decide on further production policy steps over the weekend, as crude prices reflect an ongoing battle between supply-demand fundamentals and broader macroeconomic concerns.

After being convened remotely throughout the Covid-19 pandemic, OPEC+ has returned to face-to-face meetings and will convene in Vienna on June 4. OPEC ministers are gathering for a separate meeting which is unlikely to address the result on 3 June.

Ministers face an oil market rattled by volatility in supply, uncertainty in demand and a potential recession, which could reduce fuel consumption for transport. Since October, OPEC+ – a 23-member alliance including heavyweights Russia and Saudi Arabia – has cut production by 2 million barrels per day in a bid to combat lower demand. Some members have also announced further voluntary cuts totaling 1.6 million barrels per day in April.

Group members are expected to coagulate their individual positions and proposals in the 24-48 hours before the meeting, some OPEC+ delegates told CNBC, speaking on condition of anonymity — while public comments so far have been mixed.

On May 23, Saudi Energy Minister Prince Abdulaziz bin Salman warned oil market speculators that they could face further pain ahead, in comments some have read suggest further supply cuts may be in order.

“I continue to give advice [speculators] that they will howl. They did that in April. I don’t need to show my cards, I’m not [a] poker player … but I just wanted to tell them, be careful,” he said at the time.

Russian Deputy Prime Minister Alexander Novak later indicated he did not expect any 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 dispute in March 2020 that led to a month-long dissolution of their oil partnership and a subsequent price war.

Moscow and Riyadh later repaired ties through a new OPEC+ deal to respond to a plunge in demand driven by the Covid-19 pandemic – and have been like-minded 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 to dispel the perception of a public rift.

The two reviewed the cooperation between their countries and “ways to strengthen and develop them in all fields, in addition to discussing the consolidation of bilateral and multilateral action,” according to the Saudi Ministry of Foreign Affairs.

Two OPEC+ delegates, who did not want to be named because of the market sensitivity of the meeting, told CNBC that further output cuts were unlikely this weekend. One noted that this will remain the case unless demand remains low in China – where production has fallen short of expectations, in the wake of the lifting of strict Covid-19 restrictions.

A third source said OPEC+, which prioritizes the state of global inventories over outright prices, would be comfortable with futures above $75 a barrel, while a fourth forecast near $70-80 a barrel.

Brent futures for August delivery traded at $75.70 a barrel at 10:24 a.m. in London, up $1.42 a barrel from Thursday’s settlement.

The OPEC+ group is not “after spikes” and seeks a “balanced market,” the fourth delegate told CNBC, stressing that the alliance must continue to take a “precautionary” production strategy. Deep cuts also risk attracting US ire, as Washington has historically criticized supply cuts that put the burden on consumer households.

Goldman Sachs’ analysts expect OPEC+ to keep 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 “clearly below our estimate of $80-85/bbl by OPEC. Very low positioning, the Saudi determination not to give speculators free rein, and the decision to meet in person also suggests that deeper cuts are likely to be discussed.”

OPEC+ has been wading in stormy waters for much of the year. Oil markets have historically been driven by physical supply and demand – which have been increasingly overshadowed by broader macroeconomic concerns over the fuel consumption effects of high inflation, rising interest rates and the spring collapse of several US and European banks.

OPEC+ delegates also said the group had been following US debt ceiling negotiations, as the proposal by President Joe Biden and House Speaker Kevin McCarthy went through several stages of debate and voting in a bid to keep the world’s biggest economy from defaulting on 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 Thursday note, adding that OPEC+ may maintain production as a precaution. . “Ministers may therefore take a ‘wait and see’ approach and wait to act. Demand forecasts remain tepid at best, so maintaining current production may be the most sensible course of action.”

Offers are also under question, given involuntary declines.

About 450,000 barrels per day of northern Iraqi exports were frozen by a legal dispute between Baghdad, Ankara and the Kurdistan Regional Government. Nigeria, typically West Africa’s biggest oil producer, itself reported its crude output in April to just 999,000 barrels per day after disruptions, according to OPEC’s monthly oil market report for May.

Meanwhile, the true extent of Russian output losses is unclear, as vessels carrying Moscow’s crude turn off satellite tracking and Russia looks set to shift its clientele further east.