Oil watchers predict OPEC+ to maintain steady supply

OPEC watchers expect the group and its allies to refrain from further production cuts next week, even after Saudi Arabia delivered a warning to short sellers.

Riyadh and its partners will probably opt to keep output levels unchanged when they gather in Vienna on June 3-4, according to 17 of 23 traders and analysts surveyed by Bloomberg News. Supply curbs already in place should be enough to tighten world markets and buoy prices, they said.

Saudi Energy Minister Prince Abdulaziz bin Salman signaled the alliance is prepared to consider further action by challenging speculators this week, saying at a conference in Qatar that bears should “watch out.”

Surprise cutbacks unveiled by OPEC+ members last month initially scattered oil shorts and sent prices rallying, but the market has since subsided amid fears over the global economy, and money managers have turned negative again. Fund positions across a slew of contracts are the most bearish in more than a decade.

Will OPEC+ cut supply?

Nonetheless, forecasters widely predict the 23-nation coalition will opt to keep output steady because rebounding demand in China, combined with the group’s current curbs, should rapidly deplete world inventories in the months ahead. Several OPEC+ delegates have also privately predicted a “rollover” of existing quotas.

“I believe the producer group will stick to the April plan and will not deepen the cuts,” said Tamas Varga, an analyst at PVM Oil Associates. “OPEC’s own estimate shows a considerable supply shortage for the second half. Any more reduction in actual output would further raise tension between consumers and producers.”

Data from the Organization of Petroleum Exporting Countries indicates that global oil demand will exceed supplies by an average of roughly 1.5 million barrels a day in the second half of the year.

Crude prices have stabilised after a mid-April slump, trading near $78 a barrel in London on Wednesday — a level high enough for many OPEC+ nations to cover government spending.

Global perspective

The US and other consuming nations have criticised Riyadh and its partners for constricting supplies this year, accusing them of stoking inflation and endangering the global recovery by ramping up prices. Last month, the International Energy Agency in Paris condemned OPEC for worsening the “siege” on suffering consumers.

Riyadh and its allies also may be reluctant to undertake extra measures until they have more clarity on supplies from fellow OPEC+ member Russia. Moscow has pledged to slash output in retaliation for international sanctions over the Ukraine crisis, yet it’s shown little sign, so far, of following through.

Still, Prince Abdulaziz has confounded market expectations several times in recent years to purposefully wrong-foot speculators, such as with the shock supply cutbacks revealed in April and October.

Six forecasters surveyed by Bloomberg expect that OPEC+ will once again deliver an upset, with forecasts for new curbs ranging from 200,000 barrels a day to almost one million a day.

Standard Chartered Bank said in a report on May 22 that bearish speculative positions have become excessive enough to trigger an OPEC response.

The group’s decision to convene face-to-face in Vienna, rather than hold another virtual session as it did throughout the pandemic, is a symbol of serious intent, according to RBC Capital Markets.

“Opting to go in person certainly raises the likelihood of additional output action,” said Helima Croft, RBC’s chief commodities strategist.

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