OPEC+ Expected to Extend Output Cuts

A group of major crude oil producers is scheduled to meet at the beginning of June, and UBS anticipates that they will decide to extend their voluntary production cuts in an effort to maintain balance in the oil market.

The Organisation of Petroleum Exporting Countries and its allies, collectively known as OPEC+, will convene on June 1 to assess their current output reductions.

OPEC+ producers are implementing voluntary cuts amounting to approximately 2.2 million barrels per day for the first half of 2024, primarily driven by Saudi Arabia’s continuation of its previous voluntary reduction.

These latest cuts add to prior reductions announced in a series of steps since late 2022, culminating in pledged reductions totaling around 5.86 million barrels per day, which corresponds to just under 6% of global daily demand.

According to analysts at UBS in a note dated May 14, the recent decline in oil inventories has been less than anticipated, and sustained higher U.S. interest rates could influence OPEC+’s proactive strategy.

The bank expects the eight member nations that have voluntary production cuts to extend these measures for a minimum of three months prior to the regular meeting in early June.

UBS also notes that the group will likely review assessments from three independent sources regarding the production capacity of all member states.

They highlighted that this new production capacity will play a crucial role in discussions concerning an extension of the Declaration of Cooperation, which is set to expire at the end of the year.

Overall, UBS maintains a cautiously optimistic outlook for crude prices in the upcoming months, supported by robust demand and the ongoing efforts of OPEC+ nations to stabilize the oil market.