{"id":17305,"date":"2023-06-02T13:22:43","date_gmt":"2023-06-02T17:22:43","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/uncertainty-over-russia-frustration-in-saudi-arabia-cloud-oil-market-prospects-ahead-of-opec\/"},"modified":"2023-06-02T13:22:44","modified_gmt":"2023-06-02T17:22:44","slug":"uncertainty-over-russia-frustration-in-saudi-arabia-cloud-oil-market-prospects-ahead-of-opec","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=17305","title":{"rendered":"Uncertainty over Russia, frustration in Saudi Arabia cloud\u00a0oil-market prospects ahead of\u00a0OPEC+"},"content":{"rendered":"

A meeting by major oil producers on Sunday will lack the element of surprise, two months after an unexpected decision to implement deeper production cuts led to a temporary rally in U.S. prices to their highest level of the year.<\/p>\n

June 4 marks the first official OPEC+ meeting since December, and it comes at a time of heightened tensions between Saudi Arabia and Russia, among the world\u2019s largest oil producers.<\/p>\n

\n

It is \u201cnot clear yet\u201d what decision may be made at the meeting in Vienna, said Jim Burkhard, vice president and head of research for oil markets, energy & mobility, at S&P Global Commodity Insights. \u201cThe uncertain macroeconomic environment adds complexity to the decision-making process.\u201d<\/p>\n

\u201cThe future course of Russian production and exports is another question,\u201d he told MarketWatch.<\/p>\n

The Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, made a surprise announcement on April 2, a day ahead of a committee meeting that wasn\u2019t expected to result in any output decision.<\/p>\n

OPEC+ said its members would cut an additional 1.16 million barrels a day of oil output starting in May, on top of the previously announced OPEC+ reduction of 2 million barrels a day, and the separate extension of Russia\u2019s reduction of 500,000 barrels per day that had been set in retaliation to western oil-price caps and sanctions.<\/p>\n

The decision in early April was particularly surprising given that the group was only scheduled to hold an April 3 meeting of the OPEC+ Joint Ministerial Monitoring Committee, which hasn\u2019t had the ability to make official output decisions.<\/p>\n

Frustration<\/h2>\n

The group\u2019s production cuts haven\u2019t had the effect the market expected.<\/p>\n

\u201cSaudi Arabia is frustrated that crude-oil prices are not higher, especially after the surprise announcement of a production cut in April,\u201d Brian Kessens, Tortoise senior portfolio manager and managing director, told MarketWatch. \u201cWe think Saudi Arabia wants to keep the market guessing.\u201d<\/p>\n

Global benchmark Brent crude prices
\n BRNQ23,
\n +2.10%<\/bg-quote><\/p>\n

BRN00,
\n +2.10%<\/bg-quote>
\n settled as high as $87.33 a barrel on April 12 on ICE Futures Europe, the highest since late January. U.S. benchmark West Texas Intermediate crude
\n CL.1,
\n +1.93%<\/bg-quote><\/p>\n

CLN23,
\n +1.93%<\/bg-quote>
\n finished April 12 at $83.26 on the New York Mercantile Exchange, the highest since mid-November.<\/p>\n

The gains proved to be short lived, with U.S. prices on Tuesday ending below $70 for the first time in nearly four weeks. For the month of May, WTI oil futures lost more than 11%, and Brent oil dropped nearly 9%.<\/p>\n

The Saudis are likely to make no change to the current output agreement given that the April cut has only recently come into effect, at the start of May, and \u2014 if another cut was forthcoming, Saudi Arabia \u201cdoesn\u2019t have the element of surprise,\u201d said Kessens.<\/p>\n

One surprising development ahead of the meeting, however, is that OPEC has reportedly barred several media group from attending the meeting on Sunday in person. <\/p>\n

Reporters from Reuters, Bloomberg News and The Wall Street Journal were denied invitations to OPEC\u2019s headquarters in Vienna, the Financial Times reported on Wednesday, citing people familiar with the matter. No reason was given for excluding the media groups. Reuters and Bloomberg reported on their exclusion Wednesday. A Dow Jones spokesperson had no comment. OPEC didn\u2019t immediately respond to a request for comment.<\/p>\n

Saudi Arabia-Russia tensions<\/h2>\n

Prince Abdulaziz bin Salman, Saudi Arabia\u2019s energy minister, reportedly delivered a warning to traders betting on falling oil prices while speaking at an economic forum in Doha on May 23. <\/p>\n

Some analysts saw that as a suggestion that OPEC+ may further reduce output at its June meeting.<\/p>\n

However, Reuters reported that Russia Deputy Prime Minister Alexander Novak told the Izvestia newspaper that he didn\u2019t expect any additional measures to be announced at the gathering. <\/p>\n

\u201cRussia is likely focused more on the short-term given the need to finance their war effort in Ukraine,\u201d said Kessens. \u201cRussia is likely aiming to maximize production and sell at the highest price possible given sanctions.\u201d<\/p>\n

Still, Saudi Arabia is not likely \u201cso aggrieved by the loss of market share in Asia that it\u2019s seeking to repeat the March 2020 production batter with Moscow,\u201d Helima Croft, head of global commodity strategy and MENA research at RBC Capital Markets, wrote in a research note dated Tuesday.<\/p>\n

In March of 2020, OPEC+ failed to reach an agreement to further curb oil production levels and the Saudis and Russians vowed at the time to boost production in what became known as a price war. <\/p>\n

Russian oil production continues to \u201cdefy expectations of a collapse,\u201d but it\u2019s \u201chard to make the case that Moscow\u2019s best energy days are ahead and that it will be easy for them to maintain their current production given the sanctions headwinds,\u201d said Croft. At the same time, it\u2019s not likely that other producers will want to \u201cendanger their economic positions to try to bring Russia in line at this stage.\u201d<\/p>\n

The decision<\/h2>\n

Analysts say the more plausible outcome scenarios for the meeting include a \u201clean\u201d output cut or leaving the current agreement in place.<\/p>\n

\u201cAt the very least, expect a statement urging members to respect their agreements,\u201d said Michael Lynch, president of Strategic Energy & Economic Research, given that the market is a bit worried the Saudis will let prices drop in retaliation for the Russians apparently not meeting their quotas.<\/p>\n

It\u2019s also possible, particularly if oil prices continues to be under pressure this week, that the Saudis will announce another cut of 1 million barrels per day for the group, he told MarketWatch.<\/p>\n

Meanwhile, Croft believes that the in-person meeting Sunday provides OPEC with \u201cconsiderable latitude for a deeper cut,\u201d but she also said RBC Capital Markets does \u201cnot rule out that the group stays the course on the current agreement, believing they have done enough for now.\u201d<\/p>\n

The Saudi energy minister has shown that he doesn\u2019t need to be bound to a formal meeting cycle to make tweaks to \u201cfirm the floor and put short sellers on notice,\u201d she said.<\/p>\n

<\/p>\n
\n

\n \u201c<\/span>\u201c Given the softness in oil prices, as well as the ongoing revenue imperative, we would classify ourselves, at this stage, as in the \u2018lean cut\u2019 camp.\u201d \u201d<\/span>\n <\/p>\n


\n \u2014 Helima Croft, RBC Capital Markets<\/span>
\n <\/small><\/p><\/div>\n<\/p><\/div>\n

\u201cGiven the softness in oil prices, as well as the ongoing revenue imperative, we would classify ourselves, at this stage, as in the \u2018lean cut\u2019 camp,\u201d Croft said.<\/p>\n

OPEC+ may take a win either way, in terms of seeing prices eventually rise.<\/p>\n

If the group does not cut production and the price tanks, \u201can already underinvested industry becomes even more underinvested,\u201d said Brian Frank, chief investment officer at Frank Capital. \u201cThis gives the group more power in the future as opposed to cutting and focusing on the short-term price.\u201d<\/p>\n

Overall, short-term demand is \u201ctanking\u201d but long term, the market is \u201cvastly undersupplied,\u201d said Frank.<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A meeting by major oil producers on Sunday will lack the element of surprise, two months after an unexpected decision to implement deeper production cuts led to a temporary rally in U.S. prices to their highest level of the year. June 4 marks the first official OPEC+ meeting since December, and it comes at a […]<\/p>\n","protected":false},"author":1,"featured_media":16732,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-17305","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nUncertainty over Russia, frustration in Saudi Arabia cloud\u00a0oil-market prospects ahead of\u00a0OPEC+ | iFintechWorld<\/title>\n<meta name=\"description\" content=\"A meeting by major oil producers on Sunday will lack the element of surprise, two months after an unexpected decision to implement deeper production cuts\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=17305\" 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