OPEC+ Likely To Extend Production Cuts Amid Rising Summer Demand: Report

The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, are expected to extend their current production cuts this weekend, as per delegates and analysts.

What Happened: The OPEC+ alliance, which was scheduled to meet in person in Vienna on Jun. 1, has now moved the meeting to a virtual platform on Jun. 2. The group is currently implementing a combined 5.86 million barrels per day of supply cuts, with 2 million barrels per day set to expire at the end of this year, as per a CNBC report on Tuesday.

Market participants are closely watching whether the remaining 2.2 million barrels per day of cuts, which are in place until the end of the second quarter, will be extended. This is in light of projected demand increases, particularly in the summer months.

Three OPEC+ delegates, speaking on the condition of anonymity, told CNBC that the 2.2 million-barrels-per-day supply reductions are likely to be prolonged. The group is also monitoring individual members’ quota compliance and has requested overproducers to implement additional cuts, with Iraq and Kazakhstan having detailed compensation plans.

The OPEC+ coalition’s decision to extend production cuts is influenced by the anticipated rise in summer demand, driven by factors such as the conclusion of China’s refinery maintenance and increasing U.S. consumption as summer approaches.

"Come June, China would be largely out of refinery maintenance, U.S. consumption is improving as summer moves closer, so June should already see negative crude balances. And then August is the peak month for tightness," Viktor Katona, lead crude analyst at Kpler, said according to the report.

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Why It Matters: Recent geopolitical events, such as the Israeli forces entering safe zones in Gaza, have also added to the uncertainty in the oil market. The ongoing tensions in the Middle East have contributed to global inflation and energy security concerns, further influencing OPEC+’s decision-making.

Oil prices have remained range-bound in the first half of the year, with the potential for spikes due to developments in the Middle East.

Rystad’s Jorge Leon noted that regional escalations could add a risk premium of up to $10 per barrel. OPEC+ delegates told CNBC that while the situation in the Gaza Strip still adds some pressure, the market has mostly absorbed its impact.

OPEC+ must also navigate its relationship with the U.S., which has criticized the coalition’s supply cuts over gasoline price concerns. Last week, the Biden administration announced the release of 1 million barrels of gasoline from reserves to lower pump prices. Similar measures were taken with the Strategic Petroleum Reserve during the COVID-19 pandemic.

However, an OPEC+ delegate noted these actions are unlikely to have a long-term impact beyond summer price relief. The U.S. usually aims to replenish its emergency state reserves stockpile, according to the report.

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Image Via Shutterstock

This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote

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Posted In: NewsSector ETFsCommoditiesGlobalMarketsETFsChinaGazaInflationKaustubh BagalkoteMiddle EastOilOPEC+
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