OPEC+ Expected To Confirm Supply Increase

By Warren Patterson and Wenyu Yao of ING Economics

Tuesday, June 1, 2021 5:27 AM EDT

Energy

Oil prices appear well supported, with ICE Brent still in striking distance of the US$70/bbl level. While there are concerns over tighter COVID-19 related restrictions across parts of Asia, the market appears to be more focused on the positive demand story from the US and parts of Europe. In the US, the summer driving season officially got underway following the Memorial Day weekend, and we have entered this period with gasoline inventories already trending lower, and not too far from a 5-year low for this time of the year. Given that demand is expected to continue edging higher, this suggests that we will only see a further tightening in the US gasoline market, which should be supportive for gasoline cracks over the coming months.

Preliminary OPEC production numbers for May are starting to come through, and according to a Reuters survey, the group’s output increased by 280Mbbls/d MoM to average 25.52MMbbls/d in May. However, this was much less than the group was allowed to increase over the month. Under the deal, OPEC was allowed to increase output by 277Mbbls/d MoM, whilst Saudi Arabia was also set to bring an additional 250Mbbls/d back over the month (this was part of the additional voluntary cuts the Kingdom made). The shortfall was a result of involuntary reductions from Nigeria and Angola, while Iranian supply is also thought to have declined over the month.

Later today, OPEC+ will hold their monthly meeting to discuss production policy. The key question for the market whether the group goes ahead with the planned output increase over June and July, particularly with the prospect for additional supply from Iran and demand concerns from parts of Asia. However, we believe that the market will be able to absorb this additional supply, and so would expect the group to confirm that they will increase output as planned over the next 2 months. The market will also be looking for any hints from the group on what they may do with supply after July. Our balance sheet also shows that the group has room to increase output later this year, despite the potential for further Iranian supply.

Metals

With respect to copper, on Friday, almost 99% of union members (which includes operators and maintenance staff) at BHP’s Spence mine rejected the management’s latest wage offer and opted for strike action. BHP is expected to request a 5-day period of government mediation in order to try to reach a deal. Meanwhile, strike action by remote operation workers in Santiago for BHP’s Escondida and Spence copper mines entered its fifth day on Monday. In addition, wage talks with the main union at the Escondida mine are scheduled to begin in June, and any disagreement between management and the union could raise concerns for strike action at the world’s largest copper mine.

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.

less

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.