The Organisation of Petroleum Exporting Countries (OPEC) experienced a significant decline in oil output during May, primarily due to voluntary production cuts by its members aimed at stabilizing the market. As per a Reuters report, OPEC’s production dropped by 460,000 barrels per day (bpd) compared to April, and more than 1.5 million bpd since September. However, the output decrease was somewhat offset by production increases from select OPEC+ members.
In May, six OPEC nations agreed to voluntary cuts of 1.04 million bpd, in addition to the existing 1.27 million bpd reduction. This move was an effort to address market dynamics and maintain stability. Despite these actions, Moscow recently declared that OPEC+ would not implement further production cuts, causing oil prices to decline. Simultaneously, Saudi Arabia issued a warning to oil speculators ahead of the upcoming OPEC+ meeting scheduled for June 4.
OPEC aims to curb the influence of speculators who profit from predicting OPEC+ decisions. The threat by Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, has raised concerns of potential output cuts that would elevate prices and penalize short-sellers. With oil short positions reaching 184 million bpd as of May 16, a 140% increase from the previous month, market dynamics remain uncertain.
Goldman Sachs commodities analysts expect the nine major OPEC+ producers, engaged in voluntary cuts, to maintain current production levels while using rhetoric that leans towards a more hawkish stance. It is worth noting that Saudi Arabia’s fiscal breakeven oil price for this year stands at $78 per barrel, although practical considerations, such as budget requirements, may push it higher.
