OPEC+ Preparing to Extend Output Cuts in June

Crude oil prices saw an uptick on Thursday after experiencing three consecutive days of declines. However, the overall market sentiment remains weak, which raises the probability of OPEC+ maintaining its output cuts in the upcoming June meeting, according to analysts at Citi.

As of 10:10 ET (14:10 GMT), Brent crude futures increased by 0.7% to $82.45 per barrel, while West Texas Intermediate crude futures also rose by 0.7% to $78.14 per barrel. Both benchmarks, however, had dropped more than 1% on Wednesday, marking their third consecutive day of losses.

Citi highlighted that the recent market downturn can be attributed to weaker data, including rising oil inventories, sluggish demand, and declining refinery margins, alongside the growing risk of production cuts. The bank noted that while geopolitical risks have eased, they still persist. Additionally, global oil inventories have shown stock builds for April that continue into May, as evidenced by recent high-frequency data in both global markets and the US.

Funds are also in the process of liquidating their net positions across the crude oil market due to a clear bearish trend and diminishing geopolitical risk premiums. Given the current market landscape, Citi anticipates that OPEC+ will maintain its production cuts through the third quarter of 2024 and possibly continue this approach into the first half of 2025.

Any indication of cutbacks or disagreements among OPEC+ members leading up to or during the June meeting could negatively impact oil prices in the short term, according to the bank. While a deeper production cut could provide a bullish surprise, it remains a low-probability scenario in their view.

OPEC+ has announced voluntary output cuts totaling approximately 2.2 million barrels per day for the first half of 2024, predominantly driven by Saudi Arabia extending its previous voluntary cut. These reductions are in addition to earlier measures implemented since late 2022, bringing the total pledged cuts to about 5.86 million barrels per day, which is roughly 6% of the world’s daily oil demand.