Oil: OPEC’s action on Sunday will be price-driven vs. hype - Citi

Investing.com -- The outcome of Sunday’s OPEC+ meeting will most likely be price-driven versus the alliance’s hype that it isn’t price-focused, analysts at Citigroup suggested in a note issued Thursday.

“What the 8 OPEC+ members, plus Russia, that committed to make output cuts for May actually do when they meet this weekend is likely to be a function of prices,” the Citi note said, referring to Saudi Arabia, United Arab Emirates, Kuwait, Oman, Algeria, Kazakhstan and Iraq.

“Further deterioration in prices toward $70 or below for Brent put a 60-70% likelihood on a cut by some members of the group, and Russia might not be one of them,” the note added.

OPEC Secretary General Haitham Al Ghais said in April the 13 member Saud-led Organization of the Petroleum Exporting Countries and their 10 Russian-steered allies — collectively known as OPEC+ — weren’t targeting oil prices but focused on market fundamentals.

Al Ghais’ comments came after OPEC+ announced an unexpected 1.7 million barrels per day output cut in April, on top of an existing 2M per day reduction decided in October. Both rounds of cuts provided little support to oil prices, which this week fell below $70 for U.S. crude and almost tested the same support for Brent .

Citi’s analysts agreed somewhat with the OPEC secretary-general that this year’s 13% drop in crude futures was fundamentally-driven, but stressed that any additional production cuts announced by the alliance would be price-driven.

"It appears that the core members of OPEC – Saudi Arabia, the UAE and Kuwait – may decide that it is in their interest to at least remind the world that their domestic demand – especially in Saudi Arabia – increased starting in June and that exports are likely to tighten come what may,” the Citi note said.

“And they might be moved to act with a further cut to remind markets that, with a rise in summer gasoline demand globally, further tightening might be in their interest for a month or two, providing an opportunity to see whether a summer gasoline season actually emerges.”

According to the math of the April cuts announced by OPEC+, the Saudis will take the lion’s share of the cuts, with 500,000 barrels per day, or bpd. The United Arab Emirates would contribute 144,000 bpd, Kuwait would do 128,000, Oman 40,000 and Algeria 48,000. Kazakhstan will come up with 78,000 barrels daily while Iraq will reduce its production by 211,000 bpd.

Russia is supposed to extend till the end of the year the 500,000 barrels a day it announced a month ago. However, Russian exports data suggest that Moscow is barely cutting and enhancing its oil shipments instead.