OPEC+ sticks with supply cuts while oil nears $90 a barrel

OPEC+ chose to stick with oil supply cuts for the first half of the year, keeping global markets tight and potentially sending prices higher.

A panel of key members led by Saudi Arabia recommended no policy changes at an online review meeting on Wednesday, according to delegates who asked not to be identified. That means roughly 2 million barrels a day of output curbs will remain in place until the end of June.



The cuts by the Organisation of Petroleum Exporting Countries and its partners, combined with surprisingly resilient fuel demand, have helped push crude prices to almost $90 a barrel in London, the highest level this year. Ongoing conflict in the Middle East is also propping up crude futures.

Brent crude edged higher to $89.67 a barrel by 12:32 p.m. in London.

By keeping the curbs in place, OPEC+ looks set to ensure that global oil markets remain in a slight deficit during the second quarter, according to the International Energy Agency in Paris. The shortfall could send oil prices toward $100 a barrel, JPMorgan Chase & Co. has warned.

That could spell discomfort for consumers still smarting from years of rampant inflation and complicate the job of central banks seeking to loosen monetary policy. However, for the Saudis and its allies, the rally shores up vital government revenues.

The group’s supply cuts have managed to tighten the market even though some key members — notably Iraq and Kazakhstan — haven’t implemented their agreed reductions.

The two countries have promised to make additional cutbacks to compensate, but they have a patchy track record when it comes to delivery. Baghdad has often chafed against OPEC+ output limits as it seeks revenues to rebuild a shattered economy.

Russia, which jointly leads OPEC+ with the Saudis, has also shown a mixed performance. The country belatedly implemented crude oil production cuts promised a year ago, but its delivery of export reductions agreed for this year is less clear.

While its shipments of fuels like diesel have fallen, this may be linked to Ukrainian drone strikes on Russian refineries. Meanwhile, its exports of crude are rebounding. President Vladimir Putin has been using oil revenues to continue waging war against Ukraine.



June meeting

The full 22-nation OPEC+ alliance will gather at its Vienna headquarters in early June to decide whether to continue the supply cuts into the second half of the year.

While some forecasters such as JPMorgan and Standard Chartered Plc believe the alliance can relax the cuts and restore production, others are less confident. Estimates from the IEA that if OPEC+ eases the cutbacks, world markets will tip back into surplus.

Saudi Energy Minister Prince Abdulaziz bin Salman has often urged fellow members to remain cautious in reviving halted supplies.

But neighboring United Arab Emirates appears eager to deploy newly installed production capacity and has on prior occasions clashed with Riyadh over the right to use it. Abu Dhabi pointed to the OPEC+ caps in a report this week as a reason why it had to lower economic growth projections.

Rapidan Energy Group, a consultant founded by former White House adviser Bob McNally, has said the group’s gathering in June promises to be “lively.”

© 2024 Bloomberg

Roy Walsh

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