OPEC+ To Agree On One-Month Extension To Historic Production Cuts

Update (June 6): OPEC and its allies, a group known as OPEC+, will "most likely" agree on a one-month extension of oil output cuts, an OPEC delegate told Reuters on Saturday. 

The delegate said, on condition of anonymity, "It is most likely that the meeting today will result in an extension of the agreement for one month only. This is the general trend within OPEC+."

It was noted by Reuters that OPEC+ members will meet on "Saturday to approve extending record oil production cuts and to push countries such as Iraq and Nigeria to comply better with existing curbs." 

In 32 sessions, Brent prices have risen 166% on historic output cuts, China demand, and hopes the global economy will experience a V-shaped recovery. 

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Update (0845ET): WTI prices accelerated higher after the jobs data...

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Crude prices jumped on Friday morning following a report that OPEC and its allies, a group known as OPEC+, will hold an online meeting on Saturday to discuss the possibility of extending historic output cuts by at least a month amid collapsing demand for crude and crude products following coronavirus lockdowns. 

Russia's energy ministry said Friday during a conference call that OPEC+'s Saturday meeting will discuss oil output policy.

"The conditions right now warrant hopefully successful meetings. Coordination is underway to hold OPEC and OPEC+ meetings tomorrow afternoon," Prince Abdulaziz bin Salman told Reuters.

Reuters announced positive chatter from Saudi officials in a series of headlines: 

  • CONDITIONS NOW WARRANT "HOPEFULLY SUCCESSFUL" OPEC+ MEETINGS ON SATURDAY - SAUDI ENERGY MIN TELLS REUTERS
  • COORDINATION IS UNDER WAY TO HOLD OPEC AND OPEC+ MEETINGS TOMORROW AFTERNOON - SAUDI ENERGY MIN

The sentiment is positive heading into OPEC+'s meeting, which reaffirms a possible breakthrough with getting Iraq, one of the worst members in terms of compliance with output cuts, on board with a cut extension through July.

"Prices are up with the meeting scheduled for tomorrow. There was lots of confusion ... so it looks like they found a way forward," Olivier Jakob at Petromatrix consultancy said. 

Saudi Arabia and Russia, the world's largest oil producers, are expected to extend their historic output cuts of 9.7 million bpd into July. It appears most members will comply with output cuts as a move to raise oil prices. 

With increasing signs of Chinese demand for oil, the probabilities of a deal to extend cuts are increasing into tomorrow's meeting. However, if output cuts are seen -- there is still a demand issue from major economies as it appears no V-shaped recovery this year.

Now here is where it gets tricky for OPEC: If a deal materializes tomorrow -- crude prices will likely surge with the emergence of US shale -- something Saudi Arabia and Russia do not want to see -- if there's no deal tomorrow -- then the cut would go from 9.7 bpd to 7.7 bpd -- and put an end to the several month rally in crude.