OPEC+ has shown it has what it takes to control oil prices. Without their support, it is hard to imagine the strong recovery in oil prices we have recently witnessed since oil futures traded below zero for the first time in history last year. OPEC+ is once again in the spotlight, and all eyes are on Saudi Arabia and Russia—the biggest players controlling the oil supply narrative.
A graph showing large selling of global stock markets, crashing in 2020 on global fears including a … [+] pandemic and oil prices. 3D illustration
Brent and Crude oil have experienced selling pressure for the past three days, but their prices are recovering today. Brent is trading at $62.89, and it is up 21% year-to-date (YTD), while Crude oil has soared nearly 23% YTD.
Although many fundamental factors have influenced the oil price since its crash last April, the coronavirus vaccination process remains the most important factor. Oil investors are confident that the Covid-19 vaccine will put an end to this disaster as it brings the world one step closer to its normal economic activity. This optimism has supported the oil demand.
Tomorrow, the OPEC+ alliance is set to announce its decision on oil supply. Oil traders widely anticipate OPEC+ members will increase oil supply. This confirms that coronavirus’s significant adverse influence on oil supply and demand has started to falter.
Therefore, it is time to unleash extra barrels of oil on the market. Most traders have priced in that Saudi Arabia, a key player in oil supply, is no longer going to deliver unilateral supply cuts. There is a strong possibility of Saudi Arabia returning decent supply to return to the market.
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Saudi Arabian Energy Minister Khalid al-Falih and Russian Energy Minister Alexander Novak (R) … [+] attend the one-day OPEC+ group meeting in the Saudi city of Jeddah on May 19, 2019. – Major crude producers are set to meet today to discuss how to stabilise a volatile oil market amid rising US-Iran tensions in the Gulf, which threaten to disrupt supply. Key OPEC members and other major suppliers including Russia will assess the oil market and examine compliance to production cuts agreed late last year. (Photo by Amer HILABI / AFP) (Photo credit should read AMER HILABI/AFP via Getty Images)
AFP via Getty Images
OPEC+ members are on the same page when it comes to increasing oil supply—everyone wants to do it. The ongoing debate is whether to return the bulk of 1.5 million barrels back on the market.
The meeting has two main goals. Firstly, to return to an output of 500,000 barrels-per-day (bpd) collectively next month. Secondly, to determine Saudi Arabia’s supply level after it cut its production by one million barrels-per-day.
OPEC+ expects the supply glut created by the slow down in global economic activity to completely evaporate by August.
Keep in mind that oil prices will likely remain very sensitive for the next 24 hours or so. The usual drama is chiefly about the disagreement among the policymakers. Saudi Arabia usually shows hesitancy in increasing significant supply, while Russia aches to open the oil supply taps.
As always, there will be several rumors circulating the market going into the meeting about the possibility of higher supply. Some members will begin walking away from the conversation and display their disagreement. All of these activities are usual when it comes to OPEC+, but despite all of this, speculators take every single headline as an opportunity to trade.
We will likely see a higher oil supply return to the market. As long as the number is near 500,000 bpd, we may not see much action. However, if the cartel increases the supply by a million or more, oil could see an intense sell-off.