OPEC+ meeting - Rystad Energy's live comments

Looks like there’s a draft deal. Rystad Energy’s first take (By Bjornar Tonhaugen):

In a refreshing change for OPEC’s decisiveness, it looks like we already have a draft deal. June’s cut levels to be extended to July.

If the deal gets finalized, and as we all know with OPEC+ dramas the show never ends until the fat lady sings, and we get a one-month extension, OPEC+ producers will continue to curb more than 9.7 million bpd of production.

Such a deal, with increased monthly monitoring by the JMMC committee, would mark the continuation of a fundamental support for oil prices for the coming months.

Although such an outcome is partly already priced in yesterday’s prices, traders always don’t give everything they’ve got until the deal is signed. Prices can be expected strong from Monday, keeping their 40+ USD levels and even have some more gains. What would really mark a significant price decline is an unexpected deadlock negotiations. It doesn’t look like we are there today, but we have seen before last-minute shocks in OPEC+ meetings.

What does it mean for stocks?

If the deal is ok, crude inventories will continue to draw down to the tune of 3-4 million barrels per day over July-August, as crude supply may be reduced by an additional 2.5-3 million bpd in July, compared to only a tapering down of the cuts as per the original agreement from April.

But hey, don’t forget, reducing the oil stocks is a MAJOR issue for the profitability of oil sales. Everyone has interest in this and the quickest stocks fall, the higher prices will get. And that is crucial for many OPEC+ economies, whose fiscal budgets count on oil sales.

Will it work?

The group as always is based on trust rather than an effective penalisation mechanism for sub-compliance, so the group seems very adamant about ensuring rigorous monitoring mechanisms are in place, such as monthly meetings by the JMMC monitoring committee. AS always we do not expect full compliance, despite Iraq seeming to be agreeing on the cuts extension. Sub-compliance is an issue, but better to have sub-compliance on a 9.7 million bod level, rather than a lower one.

What does it mean for OPEC+?

After disappointing meetings earlier this year, OPEC+ has realized that decisiveness is important to stabilize the market and countries seem more determined to find a deal, rather than leave things to their own luck. Deals in the previous meeting and now, are paramount to restore trust in OPEC+ stabilization leadership.

Let’s see what comes next today!

Read the latest issue of the OGV Energy magazine HERE.