The Organization of the Petroleum Exporting Countries and their allies will have a lot on their minds on Tuesday when they gather via teleconference to assess the latest developments in the oil sector.
Crude oil prices are set to tally a second-straight monthly gain, with demand for fuel expected to rise as the U.S. Memorial Day weekend marks the traditional start to the American summer driving season. The potential revival of the 2015 Iran nuclear deal, however, threatens to add a significant amount of crude to the global market.
The recent surge in oil prices “will not go unnoticed” in the upcoming gathering of major oil producers, a group known as OPEC+, Phillip Streible, chief market strategist at Blue Line Futures, told MarketWatch.
The recent surge in oil prices “will not go unnoticed” at Tuesday’s OPEC+ meeting.
— Phillip Streible, Blue Line Futures
U.S. benchmark West Texas Intermediate oil was looking at a monthly rise of over 5% and the global benchmark Brent was up more than 3% this month as of Thursday’s price settlements, according to Dow Jones Market Data.
On Thursday, July WTI oil
settled at $66.85 a barrel, the highest front-month finish since October 2018. July Brent
traded ended at $69.46 on Thursday, the highest in over a week. Prices in Friday dealings wavered between minor losses and gains.
Given the increasing demand and decreasing supply, this could be the “best opportunity” for OPEC+ to increase production, said Streible.
Over the past four weeks, the market has seen U.S. crude inventories reported by the Energy Information Administration “drift lower” and they remain well below the five-year average, “making supplies uncomfortably tight heading into the summer driving season,” said Streible, suggesting that those factors may lead OPEC+ to continue its gradual production increase.
OPEC+ current agreement calls for a gradual climb in crude production. Those increases began in May and would run through July.
In a note dated Thursday, analysts at RBC Capital Markets, said the producer group will “stick with the cautious production return schedule” that it agreed to in April.
Russia is likely to “seek to accelerate the pace of the ramp up” in output, but Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman may call for “keeping the more conservative increase given the high COVID case counts in India and Japan, as well as the looming return of Iranian exports in the back half of the year,” they said.
Talks over reviving a nuclear deal with Iran have been ongoing since April. An agreement between world powers and Iran could lead the U.S. to lift sanctions on Tehran, allowing it to boost global oil supplies.
With the Iran nuclear deal “seemingly on the cusp of being revived, the lifting of sanctions could see a further 1.1 [million barrels per day] of oil added to the market by the end of the year,” said James Swanston, middle East and North African economist at Capital Economics, in a Thursday note. That could prompt the rest of OPEC+ to “take a more tempered approach to raising output to ease any downward pressure on oil prices.”
RBC analysts said they are aware of the Saudi oil minister’s “predilection for producing surprise endings,” but still think his desire to ensure “sustainability and stability” in the market will lead him to continue the current course on output for now.
That means OPEC+ will most likely continue to “incrementally” add 350,000 barrels per day and 441,000 barrels per day in June and July, with Saudi Arabia bringing back 350,000 barrels per day and 400,000 barrels per day of its unilateral cut from early this year, the RBC analysts said.