Extension of cuts on table for OPEC, allies
With futures unchanged, plan would continue curbs for three months
The oil market took an initially neutral view on OPEC-plus deliberations that could result in the producer group announcing a short extension to unprecedented output curbs.
Futures in New York were little changed near $35 (U.S.) a barrel, though they held onto sharp gains from shortly before Friday’s close. The Organization of Petroleum Exporting Countries and its allies are considering bringing their next meeting forward to Thursday, where they will discuss prolonging production curbs by one to three months, according to a delegate. The existing agreement calls for the output cuts to ease from July.
Up to this point, the production curbs have been effective. Crude rallied almost 90 per cent last month, a record gain, as reduced supply helped to offset the demand losses from the coronavirus outbreak. A key oil spread that helps dictate the flow of crude from regions including the North Sea and West Africa turned positive for the first time since March on Monday, the latest sign that crude’s recovery isn’t just financialdriven.
“The prospect of OPEC-plus advancing its meeting and agreeing an extension rather than tapering of the deeper cuts should support crude’s rally this week,” said Vandana Hari, founder of energy consultancy Vanda Insights.
An earlier OPEC-plus meeting would give the producer group more flexibility to change its current production limits as members usually decide their plans for shipping oil for July in the first week of June. The group’s preference is to take short-term measures on cuts as the situation is changing quickly, the delegate said. The coalition, which includes OPEC’s 13 members plus another10 exporters, has achieved 92 per cent compliance, according to an estimate by data analytics firm Kpler.
Though crude has rallied, there’s still evidence of a supply dip in the U.S. The number of rigs in the world’s largest producer nation dropped for an 11th consecutive week to the lowest since 2009, according to data from Baker Hughes. Still, there’s a risk that oil’s continued advance could tempt some producers to turn their taps back on again.
Meanwhile, the U.S. Oil Fund ETF will begin its monthly roll of futures contracts on Monday. The fund plans to sell its July holdings and buy more November and January futures over the next 10 trading sessions.