OPEC+, led by Saudi Arabia and Russia, agreed in early October to cut production by 2 million barrels per day starting in November.

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The OPEC+ alliance will decide on the next steps in production policy at the weekend, as oil prices reflect the ongoing battle between supply and demand fundamentals and broader macroeconomic concerns.

After convening remotely during the Covid-19 pandemic, OPEC+ has returned to face-to-face meetings and will meet in Vienna on June 4. OPEC ministers will meet in a separate meeting that is unlikely to address output on June 3.

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Ministers face an oil market rocked by fluctuating supply, demand uncertainty and a future recession that could reduce transport fuel consumption. Since October, OPEC+ — the 23-member alliance that includes heavyweights Russia and Saudi Arabia — has cut production by 2 million barrels a day in an effort to combat lower demand. Some members also announced further voluntary cuts totaling 1.6 million barrels per day in April.

Members of the group are expected to gather their individual positions and proposals 24 to 48 hours before the meeting, some OPEC+ delegates told CNBC, speaking on condition of anonymity — while public comments have so far been mixed.

Saudi Energy Minister Prince Abdulaziz bin Salman warned oil speculators on May 23 that they could face more pain ahead, in comments some read suggested further supply cuts could be coming.

“I still give advice [speculators] that they will reach They did it in April. I don’t have to show cards, no [a] poker player… but I would tell them, be careful,” he said at the time.

Russian Deputy Prime Minister Alexander Novak later said he did not expect any further action from the OPEC+ meeting, but then said his comments had been misinterpreted as downplaying production cuts. This was reported by the Russian state news agency Tass.

Russia and Saudi Arabia have been united in their public stance on OPEC+ since the March 2020 dispute that led to the month-long dissolution of their oil partnership and subsequent price war.

Moscow and Riyadh later patched up relations through a new OPEC+ deal to respond to the drop in demand caused by the Covid-19 pandemic – and have since remained like-minded on OPEC+ matters. Saudi Arabia’s Foreign Minister Prince Faisal bin Farhan al-Saud and his Russian counterpart Sergei Lavrov met on the sidelines of the BRICS summit in Cape Town on Thursday without a sense of public rift.

The two reviewed cooperation between their countries and “ways to strengthen and develop it in all areas, in addition to discussing the consolidation of bilateral and multilateral actions.” according to the Saudi Foreign Ministry.

Two OPEC+ delegates, who asked not to be named because of market sensitivity to the meeting, told CNBC that further output cuts are unlikely this weekend. One noted that this will continue to be the case unless demand remains weak in China – where the recovery has lagged behind expectations due to the lifting of strict Covid-19 restrictions.

A third source said OPEC+, which prioritizes the state of global inventories over spot prices, would be comfortable with futures above $75 a barrel, while a fourth estimated near $70-80 a barrel.

Brent futures for August expiration were trading at $75.70 a barrel at 10:24 a.m. in London, up $1.42 a barrel from Thursday’s settlement.

OPEC+ is not “on its toes” and is striving for a “balanced market,” a fourth delegate told CNBC, stressing that the alliance must continue with a “precautionary” production strategy. The deep cuts also risk drawing American ire again, as Washington has historically criticized supply cuts that pile pressure on consumer households.

‘Wait and see’?

Goldman Sachs analysts expect OPEC+ to keep production unchanged this weekend. But on Wednesday, they said they saw a “significant 35% subjective probability” of further OPEC cuts, as oil prices are “well below our $80-85/bbl OPEC estimate.” The very low position, the Saudi determination not to give speculators a free hand and the decision to meet in person also suggests that deeper cuts are likely to be discussed.”

OPEC+ has been wading through stormy waters for most of the year. Oil markets have historically been driven by the physical fundamentals of supply and demand – which have been increasingly overshadowed by broader macroeconomic concerns about the impact of high inflation on fuel consumption, strengthening interest rates and the spring collapse of several US and European banks.

OPEC+ delegates also said the group was watching talks on the U.S. debt ceiling as President Joe Biden and House Speaker Kevin McCarthy’s proposal went through several stages of debate and voting as the world’s largest economy tries to avoid defaulting on its bills.

“The impact of higher oil prices on the global economy will weigh heavily on the minds of ministers,” Jorge Leon, senior vice president of oil market research at Rystad Energy, said in a note on Thursday, adding that OPEC+ could maintain production as a precaution. . “Ministers may therefore take a ‘wait and see’ approach and delay any action. Demand forecasts remain tepid at best, so maintaining current production could be the most prudent course.”

Due to involuntary declines, the supply is also questioned.

Roughly 450,000 barrels per day of northern Iraqi exports have been frozen in a legal dispute between Baghdad, Ankara and the Kurdistan Regional Government. Nigeria, typically West Africa’s biggest oil producer, alone reported its April oil output at just 999,000 barrels a day after outages, according to OPEC’s monthly report for May.

Meanwhile, the true extent of Russian production losses remains unclear as vessels carrying Moscow’s crude turn off their satellite tracking and Russia tries to shift its clientele further east.

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