Opec+ ministers look increasingly likely to agree to extend the group's current crude oil supply cuts into the second half of the year when they meet virtually on 2 June. But as ever, when it comes to this iteration of Opec+, an added surprise should never be ruled out.
Opec and its non-Opec partners head into this weekend's meetings facing plenty of uncertainty, not only around supply-demand fundamentals but also the macroeconomic outlook. While some green shoots for the global economy are appearing ꟷ signs of stronger-than-expected growth in China and the Eurozone tentatively exiting recession in the first quarter ꟷ data out of the US remain a point of concern, with the Federal Reserve continuing to signal the need to reinforce restrictive monetary policies.
The uncertainty, coupled with geopolitical tensions, has contributed to erratic movement in oil prices over the past couple of months. Ice Brent futures breached the $90/bl mark in early April, up more than 10pc on the month, only to shed most of those gains in the weeks that followed. The front-month Ice Brent contract has been oscillating between $82/bl and $84/bl since the middle of May.
Effectively, the only thing up for debate at the weekend meetings ꟷ one involving Opec ministers, another involving the wider Opec+ coalition and a third consisting of the Joint Ministerial Monitoring Committee (JMMC) ꟷ is the fate of the 2.2mn b/d "voluntary" supply cut that eight member countries, led by Saudi Arabia and Russia, committed to in late November. It was originally due to last for just three months but was later extended for another three months until the end of June.
When oil prices were climbing in early April, in the face of tightening fundamentals and rising geopolitical tensions, expectations were high that the group would begin to unwind at least part of the 2.2mn b/d cut from July. But a growing consensus that tensions in the Middle East were unlikely to threaten supply, coupled with signs that the Fed and other major central banks may hold off on loosening monetary policy, brought with it a softening in oil prices and a change in sentiment among Opec+ delegates about what lies next.
Delegates now argue that the market does not need an injection of additional supply, particularly in light of the uncertain outlook for oil demand in the second half of 2024.
"The oil market is well supplied," one delegate said. "Some producers are facing difficulties to clear their May and June programmes."
A second delegate described the outlook for oil demand as "highly uncertain", while a third conceded "it is unclear to what extent oil demand will actually pick up in the second half".
Three other delegates said they expect the eight countries to agree an extension of current cuts, although it remains unclear whether it will be for three months, to the end of the year or maybe even longer.
"A rollover would be most logical," one said.
Although not an immediate priority, discussions will also be taking place about how the cuts should eventually be unwound. Restoring supply will most likely be spread out, possibly over a long period of time, so as not to spook the market, delegates said.
Surprise, surprise
Last week's announcement that the upcoming meetings will be held online, rather than in person in Vienna, adds support to the assumption that an extension of the cuts is the most likely outcome.
But with oil prices edging towards the lower $80s/bl, more than one delegate has suggested that some of the eight member countries making voluntary reductions could spring a surprise in the form of deeper cuts.
This would not be without precedent. Saudi Arabia pledged its voluntary 1mn b/d cut, dubbed a "lollipop" by Saudi energy minister Prince Abdulaziz bin Salman, immediately after the June 2023 Opec+ meeting.
