Is OPEC holding back its big move? Major meetings make oil price trends confusing

On the weekend of June 3rd to 4th, OPEC+ major oil-producing countries will hold a major meeting to evaluate oil production decisions. Recent news shows that the prospects for prod…

On the weekend of June 3rd to 4th, OPEC+ major oil-producing countries will hold a major meeting to evaluate oil production decisions. Recent news shows that the prospects for production cuts by these oil-producing countries are even more confusing.

On Wednesday, May 31st, Eastern Time, the media quoted insiders as saying that, driven by Saudi Arabia, OPEC has banned many media from attending the OPEC+ meeting in Vienna this weekend and refused to invite Reuters, Bloomberg, Dow Jones, and the Wall Street Journal. The reporter went to OPEC’s headquarters in Vienna.

The media said that this ban was unusual and that OPEC excluded the above-mentioned media without giving any reason. People familiar with the matter said the ban was instigated by Saudi Energy Minister Prince Abdulaziz bin Salman.

Since then, other media said that until this Wednesday, the OPEC Secretariat did not invite Bloomberg, Reuters, and the Wall Street Journal to report on the meeting as usual, but directly sent interview invitations to reporters from these three media.

Some commentators believe that OPEC’s ban on media participation has led to speculation that they may announce an unexpected decision after the preparation meeting, so they do not want the media to leak information.

If this is really the consideration, then their purpose has been achieved.

On Wednesday, international crude oil fell further after falling more than 4% on Tuesday. In May, it returned to decline after ending a five-month losing streak in April. When U.S. stocks hit a daily low before the market opened on Wednesday, U.S. WTI July crude oil futures fell to $67.03, down about 3.5% on the day, while Brent July and August crude oil futures fell by at least 3% during the session.

In the end, U.S. oil closed down 1.97% at US$68.09/barrel, and the July Brent oil contract closed down 1.2% at US$72.66/barrel. After hitting a new low since May 4 on Tuesday, U.S. oil hit a new closing low since March 20, and Brent oil hit a new low since May 4 for two consecutive days. In May, U.S. oil and Brent oil fell by 11.3% and nearly 8.7% respectively.

The recent output cut decision signals released by OPEC+ are inconsistent.

Last Tuesday, the Saudi energy minister warned short-selling crude oil speculators to “be careful”. They may face another round of pain after Saudi Arabia and other OPEC+ countries suddenly announced in early April that they would voluntarily cut production by more than 1.6 million barrels per day. This made the market cautious about Saudi Arabia. Expectations for a weekend OPEC+ meeting to decide on production cuts are rising.

But last Thursday, Russian Deputy Prime Minister Novak also said that he did not expect to announce new production cuts at the recent OPEC+ meeting.

On Monday, media sources reported that relations between Saudi Arabia and Russia have become more tense. Because Saudi Arabia believes that Russia continues to supply a large amount of cheap crude oil to the market and that Russia has not fulfilled its previous commitment to reduce production, it is quite angry with Russia and has issued a warning asking Russia to abide by its commitment.

Looking ahead to this weekend’s OPEC+ meeting, Goldman Sachs expects that nine major OPEC+ oil-producing countries, including Saudi Arabia, which unexpectedly announced voluntary production cuts in April this year, will keep output unchanged, but OPEC+’s wording will offset the impact of some hawkish remarks. If oil prices remain below $80/barrel in the second half of this year, OPEC, with its improved pricing power, should allow OPEC+ to further cut production.

Goldman Sachs trader John Flood believes that the profits of Asian refineries and the sluggish industrial recovery in Europe are negative factors for the rise in oil prices. Moreover, the possible debt ceiling agreement in the United States includes the resumption of domestic student loan repayments from September this year, which may hit consumption. discretionary spending.

HSBC expects OPEC+ to take a wait-and-see approach and wait to see the impact of the recent series of production cuts before making any supply-side changes. HSBC expects that the current production cuts by OPEC+ countries, coupled with stronger oil demand from China and Western countries this summer, will jointly lead to a supply gap in the oil market in the second half of this year.

HSBC said it still expected OPEC+ to take a flexible approach and mentioned that if the expected supply gap does not occur this summer, OPEC+ may further reduce production.

Analysts at Barclays also expect a supply gap in the second half of the year as supply growth slows from non-OPEC+ countries and OPEC+ countries limit output during a period of seasonal demand growth. Barclays believes that OPEC+ is likely to remain proactive, with the main goal being to avoid oversupply.

Dutch financial institution Rabobank predicts that OPEC+ will stick to the line of production cuts and announce another production cut after April. A second production cut would more openly express OPEC+’s concerns and hint at greater vulnerability. Unless the cuts are very deep, a second production cut would be a bearish signal for oil prices.

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Author: clsrich