Saudi Arabia and its allies within the OPEC+ alliance are poised to maintain their current oil production levels for another three months, as ministers prepare to review output allocations on June 1. Despite earlier expectations of tightening petroleum supplies and dwindling inventories, the anticipated scenario has yet to materialize.
The hope among OPEC+ officials to increase production into a market characterized by rising oil prices appears to be facing frustration. Crude stocks, futures prices, and calendar spreads are all hovering around similar levels compared to a year ago, making a significant output increase unlikely.
While there may be a consideration within the group to rescind some of last year’s output cuts to counteract a potential rise in production from the United States, Canada, Brazil, and Guyana, current market conditions suggest any increase would likely be symbolic.
Front-month Brent futures have averaged $84 per barrel so far in May, aligning closely with historical averages when adjusted for inflation. Despite geopolitical tensions in the Middle East, there has been no tangible impact on oil supplies, and the war risk price premium has largely dissipated.
In the United States, commercial crude inventories remain comparable to levels from the previous year, indicating a market that is fairly close to balance. The United States serves as a significant marker for the global balance due to the efficiency with which traders exploit local discrepancies between production and consumption.
Overall, OPEC+ ministers are expected to maintain their current production levels based on past behavior, as inventories and prices remain close to the long-term average. While some members have expressed concerns about the loss of market share, particularly in the face of increased production from outside the group, there is no indication of a fundamental shift in strategy. Any decision to increase output would likely be modest and primarily symbolic, reflecting the cautious approach taken by OPEC+ in response to market dynamics.