The upcoming OPEC+ meeting is expected to decide on roll-over of the agreement, which will include a tapering of the group’s target cuts from 9.7 to 7.7 million bpd, Trend reports citing Head of Oil Markets at Rystad Energy Bjornar Tonhaugen.
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.
“The more interesting question is whether Saudi Arabia will continue to withhold 1 million bpd extra from the market in July, as it has pledged to do for June. Such are the real concerns that traders are bothered with today,” said the analyst.
He believes that more supply, and if it’s more than the demand’s rebound justifies, will mean that prices will be under pressure.
“This could have been the reason of the slight price skepticism today, as we now believe some of the shut US oil production of 1.65 million bpd will already start coming back from the third quarter of 2020,” noted Tonhaugen.
He said the US oil production will likely bottom already during June, which is not what some bullish traders expected just weeks ago.
“Russia and OPEC+ will need to include these concerns into their calculations during the next 13 days. Production in the US is, unlike in other crisis in the past, a wild card in today’s market, and the velocity of its recovery will very much determine the direction prices take, especially for WTI which has been the most volatile contract,” said the analyst.
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