It's all about how much oil is coming back into the market
And the OPEC+ agreement is the crux of the issue that will be discussed in Vienna this week. This is the agenda for the week, in case you missed our earlier posts.
Oil has been subject to headline risks coming into the week (and even today) with all the talks of an easing of output cuts helping to send oil prices lower. The end of May saw talks between Saudi Arabia and Russia come to about a 1 million bpd increase in oil output from the current OPEC+ agreement and that slowly developed into talks of a 1.5 million bpd increase.
The latter saw increased pressure on oil prices but with the lack of official confirmation, market participants were still left unsure on what to expect coming into this week.
Goldman Sachs' base case is for a 1 million bpd increase, while SocGen has a scenario of a 500k bpd increase by Saudi Arabia, Kuwait, and UAE in July while Russia is only to increase by 200k bpd in about 2-3 months. Meanwhile, Barclays says that they see an increase of 700k to 800k bpd from Q2 to Q4 this year as the likely outcome.
That pretty much says it all in terms of what the market is expecting. And then there was also weekend news that Iran, Venezuela, and Iraq will be against any agreement to increase oil output from the existing agreement.
It just makes for a very messy picture ahead of the meetings this week.
However, the latest report here by Bloomberg talked down the earlier reported 1 million to 1.5 million bpd increase in output. If Saudi Arabia and Russia are indeed looking to strike a compromise instead of severing the deal, an increase in the region of 300k bpd will probably be one of the more viable options to bring to the table.
But either way, that is a positive for oil as the market has come into this week anticipating something more heavy around the 1 million bpd region at least.
Iran and Venezuela may allow OPEC+ participants to get away with the small increase as it also gives them time to reassess their own situations with regards to sanctions imposed. For the smaller OPEC nations, the bottom-line is all that matters and they're worried about how much an increase in production will impact oil prices.
There's also talks of binding Russia and the OPEC+ participants to the agreement on a permanent basis - something which will likely help to at least sway Iran and Venezuela more in their favour instead of against.
But for Russia and Saudi Arabia, the bigger battle brews with the US continuing to increase production on their end. It's all about market share for the big guns.
For now, oil prices are finding a bit of a bottom following the latest Bloomberg report. WTI is back up to $64.79 now but is still down 0.41% on the day, though it is faring much better than earlier when it fell by more than 2% to 2-month lows.
Official confirmation of a smaller-than-expected increase in output may give a reason for bulls to cheer in the near-term, but sellers can take comfort that in the bigger picture more barrels flooding the market means that it puts a lid on any rise in oil prices.
