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Oil demand slid downwards due to COVID-19 lockdown before the last OPEC+ meeting where they took the decision to cut production. An extension for the current production cut of 9.7MMbbls/d for a few months is one broad expectation of the OPEC June meeting.
One month seem too little for some of the OPEC member countries who are hoping for a year-long extension. Being sufficient for mostly Russia alone, OPEC needed a new decision that is free of sentiments.
A market balance needed to be weighed equally with the downside and challenges of an extension before the next decision.
OPEC – Extension of Production Cut
The oil market is more reassuring now than it was in 1Q20 followed by recovering demand. It is going to be anything but a surplus in the next months inspiring the current topic, an extension.
The recovering Brent now trading at about US$40/bbl level is a good sign that an extension is going to enhance demand.
The extension wasn’t going to happen without yielding sentiments and OPEC needed to come up with a trade-off.
A short extension which will have little effect on the market by the year-end will be more pleasing to Russia and displeasing to the rest of the alliance.
Also, offsetting demand losses that came from the lockdown with the pace of the current demand recovery isn’t very feasible. An extension was.
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