In a surprising turn of events, the Organisation of Petroleum Exporting Countries (OPEC) experiences a significant plunge in oil production during May, leaving the market in a state of uncertainty. The output decline of 460,000 barrels per day (bpd), compared to April, and a staggering reduction of over 1.5 million bpd since September, is primarily attributed to voluntary production cuts by OPEC members aimed at stabilizing the market.
While the decrease in OPEC’s oil output seeks to address market dynamics and maintain stability, the impact is partially offset by production increases from select OPEC+ members. In May, six OPEC nations voluntarily implemented cuts of 1.04 million bpd, in addition to the existing reduction of 1.27 million bpd. These actions were intended to restore equilibrium, but recent statements from Moscow indicating no further production cuts by OPEC+ rattled the oil market, leading to a decline in prices.
Ahead of the upcoming OPEC+ meeting scheduled for June 4, Saudi Arabia issued a stern warning to oil speculators, aiming to curb their influence. The Energy Minister, Prince Abdulaziz bin Salman, emphasized the kingdom’s stance against profiteering from predicting OPEC+ decisions. The threat of potential output cuts looms, which could elevate prices and penalize short-sellers. With oil short positions seeing a significant increase of 140% in May, reaching 184 million bpd, market dynamics remain uncertain.
Commodities analysts at Goldman Sachs anticipate the nine major OPEC+ producers, engaged in voluntary cuts, to maintain their current production levels. However, they anticipate a shift in rhetoric toward a more hawkish stance. It’s important to note that Saudi Arabia’s fiscal breakeven oil price for this year is set at $78 per barrel, although practical considerations, such as budget requirements, may push it higher.
As the global oil market grapples with the repercussions of OPEC’s production plunge, industry players, speculators, and market analysts closely monitor the unfolding dynamics, seeking clarity in an ever-evolving landscape.
