OPEC+ Discussing 1 Million Bpd Output Cut

Oil prices were trading up on Friday afternoon as shorts got a little nervous heading into the OPEC+ weekend, with new rumors circulating about the group’s discussions about another 1 million bpd in production cuts.

The OPEC+ group is scheduled for three separate meetings beginning this weekend and concluding on June 4.

While the general sentiment has been that the group will keep the status quo as far as production targets are concerned. But Saudi Arabia’s Energy Minister has made boisterous threats against oil’s speculators in the runup to the meeting, saying that shorts will be “ouching”.

On Thursday, Reuters suggested that the OPEC+ group would be unlikely to deepen its production targets at the meeting this weekend.

But late on Friday, Reuters suggested that OPEC+ was indeed discussing an additional output cut of around 1 million barrels “among possible options” for the meeting on June 4.

“Everything is on the table,” Iran’s OPEC Governor Amir Zamaninia told reporters in the Austrian capital.

Crude oil prices were already trading up ahead of the meeting, but increased even more in the afternoon hours, bringing Brent crude to $76.32 at 4:20 p.m., a $2.06 per barrel increase on the day. WTI was trading at $71.90 per barrel at that time.

A supply reduction of as much as 1 million barrels a day is the most likely outcome, according to RBC’s Chief Commodities Strategist Helima Croft.

“We think that the continued macro worries and soured sentiment will lead the group to make another downward adjustment,” she said in a note.

But Saudi Arabia appears to still be in control of OPEC+, and The Kingdom could decide to make good on his threats to punish short sellers for their speculative trades that fly in the face of market fundamentals.

“I keep advising them (referencing oil speculators) that they will be ouching, they did ouch in April, I don’t have to show my cards. I am not a poker player…but I would just tell them watch out,” Saudi’s energy minister said late last month in the runup to the meeting.

As a reminder for why there could be some “ouching”. Bloomberg shows, the trading positions of hedge funds and other non-commercial traders are at the most bearish levels since at least 2011 across a combination of all major oil contracts…

Finally, while hedge funds are betting that OPEC is quietly overproducing and exporting much more than their recent quota permits, a recent update by Goldman Sachs shows that bears may be in for a very rude awakening, as seaborne net exports by OPEC countries which announced a cut in April have finally tumbled by over 1mmb/d over the past 2 weeks.

OPEC+ has suggested with its latest moves that its sweet price spot is around $80-90 per barrel, so it is trying to keep prices around that level.