With oil prices failing to rally as much as the OPEC+ group would like, its members began this week a series of media messaging on the sidelines of its meeting.
We have officially entered the second half of the year – the half of the year in which the energy market was expected to swing into a supply deficit.
Meanwhile, Saudi Arabia is cutting an additional million barrels per day (BPD) for July and announced this week it would extend that into August.
Saudi Arabia’s Prince Abdulaziz bin Salman also delivered a rather insulting message to the oil markets: the deal OPEC announced in June – when Saudi Arabia agreed to shave that extra million BPD of crude oil off its quota – was just too big for the oil markets to fully understand.
The Saudi energy minister also harkened back to yesteryear, promising to do whatever was necessary to support the oil market.
Based on the near-simultaneous move to extend its own voluntary production cut into August, one could interpret that as the group being prepared to cut additional BPD should the market call for it.
The UAE’s energy minister even hinted that OPEC+ could see an expansion.
Kuwait, on the other hand, was dishing out separate messaging – although not necessarily contradictory – that it was still hoping to boost its crude oil production capacity to 3.2 million BPD by the end of next year, also saying that it was expecting an increase in its production quota to utilize that capacity.
OPEC’s messaging paid off, with oil prices rising following the flurry of messages reverberating throughout the media.
This is precisely what happened after the previous meeting when Saudi Arabia announced the extra million bpd in cuts.
This time, however, the market realities should slowly skew in favor of that expected supply deficit and provide a more substantial floor underneath the pricing.
If Saudi Arabia fails to turn back on the taps when the supply deficit is reached, anyone caught on the wrong side of the trade will indeed be hurting like hell, as HRH promised.
As another preview to the insight OPEC has into the oil markets, and perhaps in direct response to the million BPD it plans on cutting starting this month, Saudi Arabia lifted its crude prices to Asia.
Such moves are a bellwether for the energy industry, which routinely sees price hikes to Asia as bullish.
The dark cloud hanging over OPEC’s plans, however, including what we expect will be its robust outlook on 2024 oil demand growth, is Iran’s crude oil exports, which have now managed to reach a five-year high as it sends more oil to Asia, partially offsetting Saudi Arabia’s voluntary cuts.
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