Oil alliance OPEC+ could extend production cuts this weekend as focus shifts away from Middle East tensions, sources say
The OPEC logo on the building of the Organization of the Petroleum Exporting Countries.
Thomas Coex | Afp | Getty Images
The oil-producing Organization of the Petroleum Exporting Countries and its allies could extend existing output cuts this week, delegates and analysts told CNBC, even as focus shifts from Middle East tensions to summer demand.
The group, collectively known as OPEC+, was set to convene in person in Vienna on June 1, but last week moved the encounter virtually to June 2.
OPEC+ producers are currently implementing a combined 5.86 million barrels per day of supply cuts. Just 2 million barrels per day of these cuts represent unanimous commitments under OPEC group policy, and expire at the end of this year.
The remainder are reduced voluntarily by a subset of the alliance. A cut of 1.66 million per barrel is in place until the end of 2024, and 2.2 million barrels per day of supplies have been trimmed until the end of the second quarter. Market participants are watching whether this latter cut will be extended for another quarter, amid projected demand hikes.
“Come June, China would be largely out of refinery maintenance, U.S. consumption is improving as summer moves closer, so June should already see negative crude balances. And then August is the peak month for tightness,” Viktor Katona, lead crude analyst at Kpler, told CNBC.
The OPEC+ coalition is also eyeing individual members’ quota compliance, asking overproducers to implement additional cuts. Iraq and Kazakhstan have detailed compensation plans.
Extension
Three OPEC+ delegates, who spoke anonymously because of the sensitivity of talks, told CNBC the 2.2 million-barrels-per-day supply reductions will likely be prolonged, with a fourth saying this is the scenario anticipated by the market. One delegate acknowledged the probable market tightness in the second half of the year, but noted that demand concerns persisted until only recently.
OPEC’s latest Monthly Oil Market Report of May projects a 2.25 million barrel-per-day increase in demand this year, while Paris-based International Energy Agency’s Oil Market Report of the same month points to just a 1.06 million-barrel-per-day demand hike.
“I think that the clever thing for OPEC+ would be to gradually unwind the voluntary cuts to limit the upside price pressure, to prevent refilling inflation,” Jorge Leon, senior vice president of Rystad Energy’s Oil Market Research, told CNBC. “However, I think that the market right now has priced in a full extension of the voluntary cuts. So I think that is what, probably, they will do.”
He added, “If they decide to fully extend the voluntary cuts, and there is perfect compliance, and they do the full compensation, and then, if, I think prices could reach closer to $100 per barrel this summer.”
Energy security concerns fueled global inflation in the wake of Russia’s invasion of Ukraine and were further stoked after the conflict in Gaza threatened a broader spillover in the oil-rich Middle East, while frequent maritime attacks by Yemen’s Houthi militants disrupted trade transit in the Red Sea.
A high-inflation environment and tight monetary policy in turn reined in oil demand, but central banks have signaled readiness to lower interest rates in the second half of the year.
Tamas Varga, analyst at PVM Oil Associates, told CNBC that the OPEC+ supply restrictions will likely remain in place for the third quarter, adding, “I also believe that the producer group will emphasize that anyone who did not comply with the quota will have to make amends. And I believe that OPEC+ will only ease the supply constraints when they see obvious signs of global oil inventories depleting.”
Kpler’s Katona aligned with the views, but noted that heavyweights Saudi Arabia, Russia and the United Arab Emirates, who participate in the voluntary reductions, could seek to scrap the latter curbs toward the end of the year.
“Further down the line into 2025, unwinding cuts might be challenging for prices as incremental production from Guyana, Brazil, Canada will saturate the markets,” he said, flagging new Floating Production Storage and Offloading facilities due to come online. “This year there’s no new FPSO in Guyana, whilst next year it starts up a new one in [third-quarter] 2025. Brazil, likewise, has one FPSO starting up this year whilst next year it will be a bonanza of new capacity.”
Rising competing supplies have reduced the market prominence of OPEC+, one OPEC+ delegate acknowledged, while analysts signaled that the group’s ongoing output cuts allows unfettered producers to capture their market share.
Priced in
Oil prices have largely languished range-bound in the first half of the year, under ongoing threat of spikes from developments in the Middle East. Regional escalations could top prices with a risk premium of up to $10 per barrel, Rystad’s Jorge Leon noted – while OPEC+ delegates told CNBC that the situation in the Gaza Strip is still adding a little pressure, but that the market has already absorbed the majority of its effect.
Katona likewise noted that the Gaza crisis “will seemingly persist for longer than everyone expected but it doesn’t really have an imprint on OPEC+ coherence and policy.”
One OPEC+ delegate meanwhile said that the unexpected death of Iranian President Ebrahim Raisi represented a tragic accident that could not be interpreted as a risk to the market, especially given that his successor will likely pursue similar politics.
“I think the geopolitical risk premium has subsided and I think that the tension between Israel and Hamas will only support prices if it will have an obvious impact on oil production or oil flows, which might come in the form of the closure of the Strait of Hormuz, or attacks on oil infrastructure in the region, something which does not look plausible at the moment,” Varga said.
OPEC+ must also balance its relationship with the U.S., which has previously blasted the coalition’s supply cuts amid concerns over gasoline prices. The Biden administration last week said it will release 1 million barrels of gasoline from reserves in a bid to curb prices at the pump. The U.S. undertook similar crude releases from its Strategic Petroleum Reserve Stocks during the Covid-19 pandemic, but one OPEC+ delegate noted such measures are unlikely to have an impact beyond price relief during the summer. The U.S. typically seeks to replenish the emergency stockpile of its state reserves.
When the $7,500 Federal EV tax credit expired September 30th, a number of carmakers leaped into action, offering rebates, price cuts, and promos of their own in a bid to keep the good times rolling. Now, it seems like even Rolls-Royce is getting in on the act with a fresh $5,000 rebate of its own for November.
CarScoops is reporting a rare lease incentive offering on the ultra-luxe Rolls-Royce Spectre electric coupe that it says, “replaces the expired $7,500 Federal EV tax credit.”
Granted, with the price of the base Spectre starting at $397,750 and climbing quickly to $467,750 for the Spectre Black Badge model, the big coupe is well above the old $80K cap and its buyers likely make far too much to qualify anyway — but if there’s one thing I’ve learned from my few brushes with Real Wealth™, it’s this: those hate paying taxes.
As such, it’s not that hard to imagine a Rolls-Royce salesperson explaining this in those terms. “This isn’t a discount or a sale or anything so gaudy,” he’d explain, dismissing any concern as petty as price. “We’re simply honoring the tax credit that you deserve.”
Rolling deep
The Rolls-Royce Spectre first rolled (Ha!) into showrooms in 2023 with a perfect sufficient 430 kW (577 hp) electric motor drawing energy from a stout, 120 kWh battery pack good for up to 265 miles (~425 km) of range. The Black Badge version bumps the horsepower to 650 (485 kW), but the purists will tell you that either number is enough.
You can find out more about Rolls-Royce’ EV leas deals, below, then let us know what you think about this sordid business of “discount dash” in the comments section at the bottom of the page.
SOURCE: CarScoops; images via Rolls-Royce.
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Germany is about to become home to Europe’s largest battery storage system – a massive 1 gigawatt (GW) / 4 gigawatt-hour (GWh) project in Jänschwalde, Brandenburg.
LEAG Clean Power GmbH and Fluence Energy GmbH, a subsidiary of US-based Fluence Energy (NASDAQ: FLNC), are teaming up to build the “GigaBattery Jänschwalde 1000.” The four-hour system will use Fluence’s Smartstack technology, its latest large-scale energy storage solution.
Once complete, Europe’s largest battery storage project will play a key role in stabilizing Germany’s grid and storing renewable power for when the sun isn’t shining and the wind isn’t blowing. It’s designed to deliver essential grid services, support energy trading, and boost energy security as the country phases out fossil fuels.
LEAG’s broader “GigawattFactory” plan combines solar and wind farms with flexible power plants and large-scale batteries across Germany’s Lusatian energy region. “By constructing gigascale storage facilities, we’re addressing one of the biggest challenges of the energy transition: ensuring constant power regardless of the availability of renewable energies,” said Adi Roesch, CEO of the LEAG Group.
Fluence CEO Julian Nebreda described the project as a “milestone for the energy future of Germany and Europe,” adding that it demonstrates how collaboration and cutting-edge technology can “transform the foundation of our economy and our everyday lives.”
The German government recently reaffirmed the importance of storage in building a secure and affordable clean power system. With this 4 GWh giant, LEAG and Fluence are implementing that priority in one of Europe’s most coal-heavy regions.
Read more: Battery boom: 5.6 GW of US energy storage added in Q2
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