Iran’s possible return to the global oil market is expected to dominate the gathering of Opec+, the supergroup headed by Saudi Arabia and Russia that also includes Tehran.
The group is will meet on May 31 and hosting its main session on June 1. Opec+ plans to incrementally add 2 million barrels per day by July despite a surge in Covid-19 infections in several markets, particularly India.
Saudi Arabia, which supported the group’s restrictions by volunteering to withdraw 1 million bpd until April, will phase out the cuts by the end of this month.
“Energy markets remain fixated on both the upcoming Opec+ ministerial meeting and likely revival of the Iran nuclear deal,” Edward Moya, senior market analyst for the Americas at Oanda, said.
“Opec+ will likely move forward with the June increase of 700,000 bpd but may decide to hold off a July supply increase,” he added.
The producers’ alliance may adopt a “more cautious approach” even if the revival in oil demand would warrant an increase in July, Oanda said in a note. Resumption of output from Iran, which has been subject to strict US sanctions, may come sooner than expected.
Tehran, which came to the negotiating table with the US to reinstate the nuclear deal, is expected to reach closure before Iran’s presidential elections on June 18.
However, the possible influx of Iranian crude to the markets may complicate crude demand recovery, Moya said. “Brent could swing by $10 in either direction, but energy traders are still optimistic the market will stay balanced,” he added.
On Friday, oil rounded off its best week since April, with Brent, the international benchmark, registering a weekly gain of 3.57 per cent.
Iran will look to rapidly bring more barrels to the market after its exports were curbed by the Donald Trump administration’s “maximum pressure” policy.
Tehran was exempted from Opec+ cuts last year.
A year ago, Opec+ came together to enforce some of the steepest production cuts in history, drawing back 9.7 million bpd from the markets in response to a historic drop in demand caused by the coronavirus-induced slowdown.
The group has since been gradually phasing out cuts and aims to bring back more supply in line with growing demand.
However, with major oil-consuming economies such as India seeing a slight decline in infection rates, demand from the world’s third-biggest consumer of oil may rise over the summer.
Indian refineries have cut their refinery runs to accommodate lockdown restrictions across several states.
“Consequently, we currently see the global crude balance net short by around 3 million bpd over July-August, making the case for a return of at least part of the Opec+ barrels increasingly convincing,” the consultancy added.