OPEC and its allies’ decision to prolong production cuts may offer a brief lift to oil prices, yet projections indicate that oil supply will likely surpass demand in the second quarter. This scenario arises as crude demand remains lackluster, coupled with a continual rise in U.S.-led non-OPEC supply.
According to Macquarie, the extension of cuts, though potentially giving momentum to a strengthening oil market, would still result in a surplus in the global supply and demand balance in Q2. The 2.2 million barrels per day of cuts implemented so far has reportedly shown “little effect” on the overall OPEC supply.
Leaders of OPEC+, Russia, and Saudi Arabia decided to extend their output cuts of 2.2 million barrels per day until the end of June. Macquarie suggests that despite this extension, tepid demand from refineries, especially through May, is anticipated to stay subdued. However, a “material increase” in demand is expected in June.
While the extension of crude output cuts from more compliant members of the group could modestly tighten the market, Macquarie notes that less compliant members will likely play a more significant role in the supply and demand outlook in Q2. Output and compliance from these members will be crucial factors to monitor leading up to the next ministerial meeting scheduled for June 1 in Vienna.
