Oil alliance OPEC+ could extend production cuts this weekend

The oil-producing Organization of the Petroleum Exporting Countries and its allies could extend existing output cuts this week, delegates and analysts told CNBC, even as focus shifts from Middle East tensions to summer demand.

The group, collectively known as OPEC+, was set to convene in person in Vienna on June 1, but last week moved the encounter virtually to June 2.

OPEC+ producers are currently implementing a combined 5.86 million barrels per day of supply cuts. Just 2 million barrels per day of these cuts represent unanimous commitments under OPEC group policy, and expire at the end of this year.

The remainder are reduced voluntarily by a subset of the alliance. A cut of 1.66 million per barrel is in place until the end of 2024, and 2.2 million barrels per day of supplies have been trimmed until the end of the second quarter. Market participants are watching whether this latter cut will be extended for another quarter, amid projected demand hikes.

“Come June, China would be largely out of refinery maintenance, U.S. consumption is improving as summer moves closer, so June should already see negative crude balances. And then August is the peak month for tightness,” Viktor Katona, lead crude analyst at Kpler, told CNBC.

The OPEC+ coalition is also eyeing individual members’ quota compliance, asking overproducers to implement additional cuts. Iraq and Kazakhstan have detailed compensation plans.

Three OPEC+ delegates, who spoke anonymously because of the sensitivity of talks, told CNBC the 2.2 million-barrels-per-day supply reductions will likely be prolonged, with a fourth saying this is the scenario anticipated by the market. One delegate acknowledged the probable market tightness in the second half of the year, but noted that demand concerns persisted until only recently.

OPEC’s latest Monthly Oil Market Report of May projects a 2.25 million barrel-per-day increase in demand this year, while Paris-based International Energy Agency’s Oil Market Report of the same month points to just a 1.06 million-barrel-per-day demand hike.

“I think that the clever thing for OPEC+ would be to gradually unwind the voluntary cuts to limit the upside price pressure, to prevent refilling inflation,” Jorge Leon, senior vice president of Rystad Energy’s Oil Market Research, told CNBC. “However, I think that the market right now has priced in a full extension of the voluntary cuts. So I think that is what, probably, they will do.”

He added, “If they decide to fully extend the voluntary cuts, and there is perfect compliance, and they do the full compensation, and then, if, I think prices could reach closer to $100 per barrel this summer.”

Energy security concerns fueled global inflation in the wake of Russia’s invasion of Ukraine and were further stoked after the conflict in Gaza threatened a broader spillover in the oil-rich Middle East, while…