- OPEC+ will meet on Sunday to discuss its outlook for oil production among member countries.
- The meeting comes as Russia continues to pump cheap crude oil into the global market.
- Tensions have risen as cheap Russian oil drives crude below a key break-even level for Saudi Arabia.
The upcoming meeting of OPEC+ on Sunday could be a big moment for global oil production, with tensions in the cartel on the rise as Russia’s steady flow of cheap crude helps keep prices down despite vows to cut production.
Sources this week told Reuters that it is unlikely that the meeting will result in fresh cuts, despite crude prices remaining under pressure even after steep reductions in output in April. However, it’s possible that Saudi Arabia brings a more assertive stance to the table this weekend in response to one key supply dynamic that’s disrupting the cartel’s plans to push prices higher.
“The OPEC+ meeting on June 4 should be pivotal,” investor Louis Nevallier wrote in a note on Friday. “[R]ussia has been pumping increasing volumes of cheap heavy crude oil onto world markets, which has been undermining Saudi Arabia’s efforts to boost prices.” Nevallier said that he expects a “very assertive” Saudi Arabia to show up to the meeting.
Russia keeps flooding the market
Russia pledged in April to cut output by 500,000 barrels a day, but since then, there’s been little evidence that crude flows have ebbed, and certain customers are buying more Russian crude than ever. India, for instance, is gorging on cheap Russian oil at record rates, and Russia has crushed OPEC’s market share in the country, even supplanting Saudi Arabia as India’s top supplier.
But Russian flows aren’t just reordering the list of top suppliers. They’re dragging prices below a key level needed for Saudi Arabia to fund big projects, and Riyadh is growing annoyed, according to a report in the Wall Street Journal this week.
The report said the country’s budget needs international oil prices to stay above $81 a barrel. Currently, Brent crude is hovering around $75.70 a barrel, and that’s even after prices have gained in recent days as the US debt ceiling deal neared the finish line and US employment surprised to the upside in May.
With prices under pressure, sources say it is possible that Saudi Arabia demands further cuts on Sunday. But Russia is unlikely to agree to that given its claim that it is already abiding by the voluntary move to slash output by 500,000 a day barrels earlier in the spring. It also badly needs the money, as energy exports are its biggest lifeline in funding its war on Ukraine.
The June 4 meeting comes at the start of summer driving season for many countries, as well. In the US, gas prices rose about $0.03 per gallon over the Memorial Day weekend as Americans hit the road.
After the previous round of OPEC cuts, analysts predicted that pain at the pump would be felt as the year went on with millions of barrels a day removed from the market. Any decision on supply this weekend could impact drivers for the rest of the year.
In April, analysts said to brace for oil to spike to $100 a barrel on the last round of OPEC cuts.