Oil prices rallied early on Friday as the market expects a weekend meeting of OPEC and its Russia-led allies to roll over the current levels of the OPEC+ production cuts by another month after June.
As of 8:31 a.m. EDT on Friday, WTI Crude was up 2.97 percent at $38.52. Brent Crude was surging 3.88 percent to $41.50, after topping $40 a barrel earlier this week for the first time since early March, when Saudi Arabia and Russia broke up the previous OPEC+ pact and started an oil price war for market share.
This month’s OPEC+ meeting hasn’t lacked the drama surrounding the group’s previous meetings. Initially, the OPEC+ group was aiming for holding the meeting on June 4, earlier than the initial plans to hold the teleconference on June 9 and 10.
Russia and Saudi Arabia—the two leaders of the OPEC+ pact—have reportedly reached a preliminary agreement to extend the current level of the OPEC+ production cuts by one month. Ahead of previous meetings, it has been customary for Russia to play hard to get and not agree to anything until the very last moment. But this time around, Russia and the Saudis look to be in agreement from the start of negotiations. However, this time they are conditioning the one-month extension to the laggards in compliance showing exemplary compliance and compensating for flouting their quotas in May. Those laggards, as usual, are Iraq and Nigeria from OPEC and Kazakhstan from non-OPEC. Related: Lithium-Ion Battery Demand To Increase By More Than 1000% This Decade
Failing to get a firm commitment from all producers about full compliance, the OPEC+ heavyweights scrapped the plan for a June 4 meeting.
The meeting is now set for Saturday, June 6, Russia’s energy ministry said on Friday, while Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, told Reuters today that “Coordination is under way to hold OPEC and OPEC+ meetings tomorrow afternoon.”
The fact that the OPEC+ pact found a way to hold the meeting this week suggests that there could be an agreement for a one-month extension of the record cuts.
“Any deal will likely be subject to better compliance from those who have fallen short so far,” ING strategists Warren Patterson and Wenyu Yao said on Friday.
By Tsvetana Paraskova for Oilprice.com
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Unlike Russia, Saudi Arabia badly needs higher oil prices and is prepared to do everything in its power to ensure that this is achieved. Abandoning the deal and flooding the market are no longer an option for Saudi Arabia.
The rise in crude oil prices above $42 a barrel today signals that the global oil market is expecting an extension despite Iraq’s and Nigeria’s cut deficits.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London