OPEC and its allies, including Russia, are set to make a decision on whether to extend production cuts during an online meeting on June 5. The current voluntary cuts of approximately 2 million barrels per day from key members like Saudi Arabia and Russia are set to expire at the end of June. If extended, these cuts would help shore up prices in the second half of the year and potentially into 2025.
The need for higher oil prices is particularly pressing for countries like Saudi Arabia, which aims to diversify its economy away from fossil fuel exports. However, extending production cuts could also lead to potential price drops for Iraq and the United Arab Emirates, who could pump additional crude but face discomfort in doing so.
The OPEC alliance has been grappling with a softening market since the recovery from the pandemic. Hefty growth in output from countries outside of OPEC Plus, such as the United States, Guyana, Brazil and Canada, has prompted producers to rein in supplies to maintain prices. At the same time, demand has not grown enough to soak up these supplies.
According to Energy Aspects analyst Richard Bronze,”Everyone just loses track of all the cuts.”
U.S. crude oil finished May with a 6% decrease, marking its worst performance since November. The global benchmark Brent also experienced a 7.1% decline this month.
The OPEC alliance is expected to maintain the current production cuts during the meeting on June 5, as any relaxation of cuts could risk sinking prices in a soft market. However, surprises from Saudi Arabia's oil minister, Prince Abdulaziz bin Salman, are always possible.
