Ministers will meet on 1 July to decide production strategy for at least one month. The group has been incrementally reducing its production cut since May, and Saudi Arabia has been bringing back its additional, unilateral 1mn b/d cut that it implemented for the February-April period. The 19 participants to the output restraint deal have a combined 38.094mn b/d target for next month.
But with Ice Brent futures settling above $75/bl yesterday, up by more than $24/bl since the start of the year, some Opec+ delegates and trade sources say that there is a risk of diminishing refinery demand. A steepening backwardation structure in the crude market — where prompt prices are at premiums to forward ones — hint at a tightening supply-demand picture. OECD commercial inventories are now below pre-Covid-19 levels, one delegate said, echoing the latest IEA view.
"OECD total industry stocks held relatively steady in April, but it was the first time in more than a year to fall below the pre-Covid 2015-19 average, 1.6 [mn bl], and were 61.3 [mn bl] lower than the 2016-20 average," the agency said in its monthly Oil Market Report on 11 June.
Demand in Asia-Pacific has improved, delegates said, noting a recovery in Chinese appetite for crude, although the recent assignment of smaller import quotas for independent refiners could revise this outlook.
"The latest market developments point to much better conditions and improved outlooks," Opec's secretary general Mohammed Barkindo said yesterday.
Two delegates said that Opec+ members could consider raising production by 500,000 b/d for August — the maximum adjustment that can made in either direction each month. One of these delegates said that ministers will probably have to continue with monthly meeting, allowing the group to be proactive to changes in market conditions.
Among the issues in focus are the evolution of the Covid-19 pandemic, inflation and the OECD economic recovery. One delegate flagged as concerns the inequality of global access to vaccination, the emergence of new virus strains and the spread of the infection in India and Brazil. Another pointed to a potential short-term boost in non-Opec+ crude supplies, with likely increases from the US in the third quarter. The EIA forecasts US output could rise to 11.17mn b/d in the third quarter, from its estimated 11.04mn b/d in the current quarter.
The Opec+ coalition has taken a conservative approach to market management in the past, favouring gradual adjustments. One delegate said that it is easier to address a supply shortage than to reduce a glut. Moves to restrict output after a production increase are more difficult to negotiate within the group, with Russia and Kazakhstan having secured permission to raise supplies in the February-April period.
Talks in Vienna on the future of the US-Iran nuclear deal are also on the radar, although a delegate said that this is unlikely to become a prime concern for Opec+ until any agreement is formalised, and Iran's new government is in place. President-elect Ebrahim Raisi, who will take the role in August, this week signalled he is not prepared to negotiate Iran's regional activities or its ballistic missile programme with Washington, throwing a potential wrench into discussions.
