Oil prices are nearing $70/b again, western economies are humming from robust COVID-19 vaccine campaigns and the summer driving season is about to kick off —prime conditions for OPEC and its allies to be sending more crude into the market.
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But coronavirus crises in Asia and the potentially imminent prospect of sanctions relief for Iran are sure to remain top of mind for the OPEC+ coalition, as it prepares to convene online June 1 to discuss production policy.
For now, delegates told S&P Global Platts that the 23-country alliance will press on with plans to relax output quotas over the next two months, until more clarity emerges over the fate of the Iran nuclear deal and the impact of coronavirus containment measures in India, Japan, Taiwan, and other hotspots.
OPEC+ countries, which held almost 7 million b/d of production offline in April, are in the process of boosting output by some 2.1 million b/d from May-July — roughly 2% of pre-pandemic demand — of which 1.4 million b/d will come from Saudi Arabia.
"It is premature to decide to delay any further easing of the production cuts while no agreement has yet been signed on the lifting of Iranian sanctions," one delegate said on condition of anonymity. "Compared to the previous month, the outlook for the short term is brighter, although uncertainties continue to weigh on oil demand."
Beyond July, however, production levels are yet to be determined. The supply accord between OPEC and its allies calls for quotas to be held steady from July to April 2022, although rapidly changing market conditions as the global economy continues to emerge from the pandemic make it likely to be adjusted, with OPEC and its allies now meeting almost every month.
Ministers will actually be convening twice in June — a second meeting for OPEC members only is scheduled for June 24.
"The good part of the monthly OPEC+ meeting is giving opportunities to monitor the market closely," another delegate said. "The market is good but still can become fragile at any time."
Eye on Vienna
The OPEC+ talks will be happening at the same time as US, Iranian, and European diplomats converge for another round of nuclear deal talks in Vienna.
Platts Analytics estimates that if a framework agreement can be reached in the coming weeks, before Iran's June 18 presidential election, sanctions relief for Iran could bring about 1.05 million b/d of Iranian crude supply into the market between May and December, potentially complicating OPEC+ efforts to prevent oil prices from backsliding.
Dated Brent, which Platts assessed at $65.68/b on the day of the last OPEC+ meeting April 27, has mostly wobbled in the upper $60s/b since hitting a two-year high of $70.30/b May 5.
But strong economic indicators from the US, UK, and other western economies, supported by fiscal stimulus measures, could help absorb the coming barrels as more cars hit the roads and industrial activity rebounds, offsetting any demand weakness from Asian countries hit hard by resurgent coronavirus infections.
Platts Analytics forecasts robust global oil demand growth of 5.1 million b/d in June and July, with supply still bullishly remaining 1.5 million b/d in deficit.
"The summer demand uplift appears to make our expected timing of Iran's return to market fortuitous for OPEC+ and market balances," Platts Analytics said in a May 28 note.
Industry under pressure
The OPEC+ deliberations will begin May 31 with a meeting of the delegate-level Joint Technical Committee to review supply-demand forecasts and assess member country compliance with quotas, which Platts calculated at 111% for April.
A nine-country Joint Ministerial Monitoring Committee co-chaired by Saudi Arabia and Russia is then scheduled to convene June 1, followed by the full OPEC+ meeting as soon as that ends.
Conformity levels have been enhanced over the past few months by an extra 1 million b/d cut that Saudi Arabia has implemented, papering over lackluster adherence by Russia, Kazakhstan, Iraq, and others. But with Saudi Arabia now dialing back its extra cut by 250,000 b/d in May, 350,000 b/d in June and 400,000 b/d in July, collective OPEC+ compliance levels could begin to drop below 100%, and pressure from the kingdom and other members on quota busters could grow.
Under the deal, countries that exceeded their caps have until September to make so-called compensation cuts of equivalent volume, although there is meager evidence of members making good on this requirement since it was instituted last year.
OPEC+ ministers also will be holding their meeting with the oil industry under a darkening environmental cloud, with ExxonMobil and Chevron shareholders rebuking the companies over their sustainability shortcomings and a court ordering Shell to slash its carbon emissions.
These actions came just after the International Energy Agency unveiled its roadmap to a net-zero world by 2050, which would require no new upstream oil and gas investments and significant declines in fossil fuel consumption.
OPEC has warned that advocacy around the IEA's roadmap could destabilize the oil market and lead to damaging price volatility, and ministers have been keen to defend their lifeblood industry while underscoring their commitment to clean energy.