When officials from many of the world’s biggest oil-producing countries meet on Sunday, their menu of options for managing the market may be limited.
Over the past two years, the group known as OPEC Plus has agreed to a succession of oil production cuts. The assumption among oil producers has been that these cuts would be temporary, but they have begun to take on an air of permanence as prices have been relatively subdued. Any easing of the cuts would risk sinking prices in what looks like a weak market, analysts say.
It’s a frustrating situation for oil producers like Iraq and the United Arab Emirates, which could pump additional crude, strengthening their budgets. “That’s where some members’ unease comes in,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm. “How do we get out of this cycle?”
Bronze said OPEC Plus would most likely agree on Sunday to extend voluntary cuts of 2.2 million barrels per day by eight of the group’s members, including Saudi Arabia and Russia. Saudi Arabia’s Oil Minister Prince Abdulaziz bin Salman, who is expected to lead the meeting, enjoys surprises, so other outcomes are possible.
These cuts were supposed to last until June and were in addition to other reductions agreed upon earlier. The multi-level measures, devised in an effort to satisfy a diverse set of interests, have become so complicated that it has become difficult to follow even for the most attentive market observers. “Everyone just loses count,” Bronze said.
Since the recovery from the pandemic, strong production growth from countries that do not agree with OPEC Plus, including the United States, Guyana, Brazil and Canada, has led producers such as Saudi Arabia to control supply in an effort to maintain prices. . At the same time, demand has not grown enough to absorb supply.
The Saudis are producing about nine million barrels per day, about 1.5 million barrels per day below 2022 levels and about three million barrels per day below capacity.
Saudi officials said this year they would pause an effort to increase production capacity, thinking there was no point in spending billions of dollars if agreements reached by OPEC Plus and other factors meant they couldn’t sell the extra oil.
In the latest sign of a relatively weak market, prices fell after attacks by Israel and Iran did not disrupt oil supplies. They recovered modestly ahead of the OPEC Plus meeting, and analysts expect rising summer travel demand in the northern hemisphere to temporarily support prices.
So far, OPEC Plus members have chosen to stick together, apparently fearing that going their separate ways could risk a sharp drop in oil prices and revenues. But there are signs of unrest in the cartel: Angola left OPEC in December, saying membership was no longer in its national interest; the United Arab Emirates and Iraq have been pumping oil substantially above agreed levels; and Iraq’s Oil Minister said in May that the country would not accept any new cuts, according to Reuters, but later said the country was willing to cooperate with the group.
In the longer term, investors are betting on lower oil prices. For example, the Brent crude futures contract, the international benchmark, for delivery in December 2027 is selling at around $72 a barrel, against about $82 for delivery in July this year.
Gary Ross, a veteran oil analyst who is now chief executive of Black Gold Investors, a trading firm, said the growing number of vehicles powered by electricity, natural gas and fuels derived from vegetable oils was one reason why Investors could move away from oil.
“There are a lot of things to worry about,” Ross said. “That’s partly why the back end of the market” is selling for much less than the current price, he added.