Enthusiasm for possible OPEC+ extension subsides
BAKU, Azerbaijan, June 4
By Leman Zeynalova – Trend:
Oil prices fall as enthusiasm for a possible OPEC+ agreement to continue June’s production cuts for more months subsides, said Rystad Energy’s Senior Oil Markets Analyst Paola Rodriguez Masiu, Trend reports.
OPEC+ is expected to extend its deal for at least another month. The cartel earlier scheduled its gathering for June 9-10, while there are suggestions that it could be held as early as on June 4.
Masiu noted that the rally that oil prices have been enjoying since Friday came to a halt today as the deal to extend the cuts that saved the markets from self-destruction was threatened by the errant behavior of some OPEC+ members.
“Saudi and Russia are pushing hard, not just asking Iraq, Nigeria, and other laggards to ramp-up compliance but also pushing for deeper cuts in the months ahead to make up for past non-compliance. This is a déjà vu of a few months earlier when the OPEC+ alliance broke over Saudi Arabia making conditional its engagement to Russian participation,” said the expert.
Masiu believes it is unlikely that Iraq and Nigeria, both struggling with a crippling economy with give up to the kingdom and the Kremlin demands to hike their quotas.
No wonder why the market is trembling, added the expert.
Prices also received headwinds from the US, as data reported yesterday by the DOE suggest that easing the lockdown is not having the desired effect in the US demand, noted the analyst.
“The figures pointed out that US diesel demand fell to a 21-year low and gasoline stockpiles swelled. In addition, civil unrest across the US intensified worries about a slowdown in the economic recovery due to a possible second wave of infections.”
“Brent prices have reached the 40-dollar mark because of market enthusiasm that June’s generous production cuts would be continued by OPEC+ in July and August, instead of gradually fall as per the original agreement. As an early meeting did not get confirmed and hopes did not, so far, materialize, prices naturally deflate now. Speculation is the price mover this week, not that many changes in fundamentals. You can expect prices to now stay below $40, unless new rumors surface or an actual meeting is scheduled,” Masiu concluded.
The 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting held on April 12 this year decided to adjust downwards the overall crude oil production by 9.7 mb/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020. For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 7.7 mb/d. It will be followed by a 5.8 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022. The baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 mb/d. The agreement will be valid until 30 April 2022, however, the extension of this agreement will be reviewed during December 2021.
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