The Brent crude price has continued to rally in June ahead of an expected OPEC+ meeting to review an extension of the supply curbs. At the time of writing, Brent crude is trading ~$40 per barrel which puts it up ~13.4% MTD and up ~107.4% from the April 21 closing low.
Hopes are building that a further extension of the May/June supply cuts which have been helping to rebalance the market could be agreed, and the newswires suggest the OPEC+ meeting date may be brought forward to 4 June to facilitate this. Under the existing production cut agreement cuts of 9.7m bpd (~10% of global output) were agreed between the OPEC+ members for May and June easing thereafter to 7.7m bpd in 2H’20 with a further easing in the curb in January 2021. In addition to this agreement, Saudi Arabia, Kuwait and UAE have made further voluntary cuts amounting to 1.2m bpd to try and help to return the market to balance.
It would make sense from the producers’ point of view to extend the more stringent supply cuts given demand is still to normalise due to the covid lockdown. Even though the oil price has rallied of late, Brent crude is still a long way off the $66 per barrel it ended 2019 at. Saudi Arabia and Russia are both ‘wealthy nations’ with asset buffers/strong net external positions that help them weather more challenging periods but at current levels the oil price is below the fiscal breakeven price of the main GCC oil producing states. For example, IMF estimates put the 2020 fiscal breakeven oil prices for Saudi Arabia at $76.10 per barrel and the UAE at $69.10. While Russia is better positioned to weather oil prices at a lower level (the federal budget works off an oil price of $40 per barrel, 2017 prices adjusted 2% annually), it would also stand to benefit from higher oil prices.