Crude oil and Brent oil have continued to push higher this week on hopes that the upcoming OPEC meeting will see the cartel and its allies agree to extend production cuts.
Officials from major oil producers were originally scheduled to hold their next (online) meeting on June 9th, but current OPEC president Algeria has proposed moving the meeting forward to June 4th – this Thursday.
Oil traders have taken this as a sign that the cartel and its allies, a grouping known as OPEC+, are eager to act as quickly as possible to keep oil markets stable.
Crude oil has gained over $0.80, or 2.3%, while Brent oil is $0.90, or 2.4%, higher today.
OPEC’s current output cut is for nearly 10 million barrels per day. It’s the highest level of production cuts in the cartel’s history and equates to around 10% of global demand.
The cut was agreed in the wake of the collapse in oil prices during March. Saudi Arabia, frustrated that OPEC ally Russia was refusing to commit to further cuts to help counteract the shock to demand caused by the coronavirus pandemic, abandoned existing curbs and slashed prices on its own oil exports.
The Kingdom and Russia soon returned to the negotiating table and agreed to the 9.7 million barrels per day cut in May and June, with the production cut reducing to 7.7 million barrels per day from July until December.
But OPEC officials are now in talks to continue with the elevated level of cuts, potentially until the start of September. While some reports suggest that the cuts could remain in place until the end of the year, such a proposal would likely meet with strong resistance from Russia.
While oil has edged higher this week on tentative hopes for an agreement on extending the cut, OPEC meetings always carry a risk of disappointment. Markets are showing restraint ahead of the gathering, which is still yet to be confirmed for this week.
While it seems that OPEC producers want to keep the current level of cuts in place, Russian participation remains a key sticking point. It seems the Russians are onboard with something, but there is a risk the final agreement falls short of market expectations.
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