By Barani Krishnan
Investing.com - OPEC’s compliance story on cuts has saved the day for oil bulls.
But the real story will be told in about 24 hours or less: What the cartel will do for production going forth? There’s speculation that a rollback in OPEC cuts is almost certain as crude exporting nations try to tap a nascent recovery in energy demand seen since the end of March-May Covid-19 lockdowns.
The bet on higher demand by the Organization of the Petroleum Exporting Countries comes as a new wave of coronavirus infections hinder — or threaten to curb — businesses that have just reopened in the United States, the world’s largest oil consumer.
“Uncertainty about OPEC raising oil output (will shake) the confidence of oil market bulls ... especially if the U.S. economy starts to again shut down,” said Phil Flynn, energy analyst at Price Futures Group in Chicago.
New York-traded West Texas Intermediate, the benchmark for U.S. crude futures, settled up 19 cents, or 0.6%, at $40.29 per barrel.
London-traded Brent, the global benchmark for oil, closed up 18 cents, or 0.4%, at $42.90.
Saudi Arabia, the world’s largest oil exporter, had for months harried others in OPEC to keep production down in order to support the market’s flight from April’s sub-zero prices to around $40.
In April, the Saudis led a push that saw the 23-producer OPEC+ alliance, that includes Russia and other non-members of the group, cut output by 9.7 million barrels a day, as the Covid-19 triggered a collapse in oil demand.
Now, Riyadh and most participants in the coalition support a loosening of the curbs, said officials speaking on conditions of anonymity to reporters. Under Riyadh’s proposal, OPEC+ would relax its current curbs by 2 million barrels a day to 7.7 million barrels a day.
Key members of the Saudi-led and Russia-assisted OPEC+ alliance are set to meet via a web conference Wednesday to debate the group’s current and future production.
Ahead of the Wednesday meeting, OPEC said it saw 2020 oil demand falling by around 8.9 million barrels a day versus a June forecast for a fall of around 9 million barrels a day. But It added that in 2021, it expects oil demand to partially recover from this year's drop, rising by 7 million barrels a day.
An OPEC source also trumpeted to Reuters the group’s compliance of 107% on pledged cuts.
Be that as it may, Wall Street’s leading oil analyst said she feared smaller producers within OPEC will start cheating again on compliance if the Saudis decide to turn their taps back up.
Helima Croft, global head of commodity strategy at RBC Capital Markets, told Business Insider that if OPEC production cuts are eased, that could open the floodgates for those within the cartel to break their commitments to quotas.