What to expect from OPEC+ meeting today - Rystad Energy's opening comment

‘Following intense back-door negotiations during the past week, the market expects today’s fast-tracked OPEC+ meeting to be mostly about formalities. After Saudi Arabia and Russia reached an agreement yesterday with Iraq and other members of the alliance, which have failed to comply with cut targets to date, the group is today expected to ratify an extension of the current 9.7 million bpd cuts by one month to the end of July.

What’s at stake for the oil market here? Well, an extension for one month itself will result in 3 million bpd lower crude production to the market in July, we believe. The market will draw down bulging crude stocks at a 3 million bpd faster pace in July after accumulating nearly 1 billion barrels of surplus into storage through the first five months of 2020. The market has mostly priced this one-month extension scenario in, we believe, so the upside to flat price is fairly limited if OPEC+ doesn’t have additional cards up its sleeve. For instance, deepening the cuts for an even longer period to fast-forward the return to a more “normal” oil price level of $50-60.

If all goes according to Riyadh’s and Moscow’s plans today, we can also expect official selling prices (OSPs) for July cargoes from Saudi Arabia being announced tomorrow. The crude market will be increasingly tight for medium and heavy sour crudes into the summer which will help the OPEC cutters’ revenues through continued strong crude differentials to Brent and other light sweet benchmarks, despite offering lower volumes to customers than in a cut tapering scenario.

We can’t completely rule out a bullish surprise from OPEC+, neither a bearish no-deal surprise outcome. But this time around, the expectation is clearly set beforehand.

Let’s wait and see how the day unfolds!’

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