Oil alliance OPEC+ could extend production cuts this weekend as focus shifts away from Middle East tensions, sources say

OPEC+ Likely to Extend Production Cuts

Production Cuts Extension
OPEC+ is expected to continue its 2.2 million-barrels-per-day supply reduction due to stable oil prices and upcoming demand increases.

Focus on Summer Demand
The shift from Middle East tensions to summer demand, coupled with increased consumption from China and the U.S., influences the decision.

Market Stability Concerns
Despite potential demand hikes, there are concerns about market tightness and inflation, which are pivotal in the decision-making process.

Compliance and Future Strategies
OPEC+ is monitoring quota compliance closely and may adjust voluntary cuts based on market conditions and inventory levels.

The expected market conditions that could influence OPEC+'s decision on whether to extend the 2.2 million-barrels-per-day supply reductions are largely tied to demand projections, geopolitical factors, and their relationship with the U.S.

1. Demand Projections: Market participants are closely watching whether the remaining 2.2 million barrels per day of cuts, which are in place until the end of the second quarter, will be extended. This is in light of projected demand increases, particularly in the summer months. "Come June, China would be largely out of refinery maintenance, U.S. consumption is improving as summer moves closer, so June should already see negative crude balances. And then August is the peak month for tightness," Viktor Katona, lead crude analyst at Kpler, said.

2. Geopolitical Factors: Recent geopolitical events, such as the Israeli forces entering safe zones in Gaza, have also added to the uncertainty in the oil market. The ongoing tensions in the Middle East have contributed to global inflation and energy security concerns, further influencing OPEC+'s decision-making. Oil prices have remained range-bound in the first half of the year, with the potential for spikes due to developments in the Middle East. Rystad’s Jorge Leon noted that regional escalations could add a risk premium of up to $10 per barrel.

3. Relationship with the U.S.: OPEC+ must also navigate its relationship with the U.S., which has criticized the coalition’s supply cuts over gasoline price concerns. Last week, the Biden administration announced the release of 1 million barrels of gasoline from reserves to lower pump prices. Similar measures were taken with the Strategic Petroleum Reserve during the COVID-19 pandemic. However, an OPEC+ delegate noted these actions are unlikely to have a long-term impact beyond summer price relief.

These factors are expected to play a significant role in OPEC+'s decision on whether to extend the current production cuts.