OPEC+ decision leaves market guessing, and oil rangebound
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Oil prices barely moved following Sunday's OPEC+ decision to eventually unwind some crude production cuts — a pledge that came with a big asterisk.
Why it matters: The oil cartel's plan has market and geopolitical implications, especially during election season when energy prices will be campaign fodder for the U.S. presidential election.
- Despite a torrid spring rally that briefly stoked fears of $100 per barrel, Brent has mostly languished in a range well below $90.
- For now, OPEC+ is in no hurry to bring many more barrels to the market as demand growth remains modest.
- It could be a signal that prices will "remain elevated through the U.S. presidential election," as the Wall Street Journal noted.
Catch up quick: Current curbs totaling 2.2 million barrels per day will extend through the third quarter and then gradually phase out through September 2025.
- But those monthly increases "can be paused or reversed subject to market conditions," the group said.
- Meanwhile, roughly 3.7 mbd of other standing cuts will be extended through 2025, though the United Arab Emirates baseline production quota rises starting next year.
Between the lines: RBC Capital Markets says Saudi Arabia may have done enough to help talks with Washington about a security deal.
- The plans to taper cuts, while hedged, could be well received, Helima Croft writes.
- "Relations between Washington and Riyadh have seen a significant recovery from October 2022 lows and today's decision should keep that trend line intact."
What we're watching: The supply trajectory from non-OPEC producers including the U.S., which will influence their decision-making.
The bottom line: "OPEC+ member countries would like to start increasing oil production without negatively impacting prices. They cannot do that just yet," S&P Global Commodity Insights executive director Bhushan Bahree said in a note.
