Oil shipping and bulk shipping stocks like TOP Ships (TOPS) & Seanergy Maritime (SHIP) are soaring again as OPEC meeting approaches and the economy reopens.
Anticipation that OPEC and allied countries will extend record production cuts through July is sending oil prices higher, with Brent crude futures, the global benchmark, rising above $41 per barrel for the first time since early March. The latest: OPEC will meet on Saturday to discuss extending output cuts by one month, two OPEC sources confirmed.
Members of OPEC and their allies, including Russia and Mexico, already pledged to cut output by 9.7 million barrels a day in May and June, helping to prop up oil prices as demand for crude begins to recover. Bjornar Tonhaugen, head of oil markets at Rystad Energy, notes that oil producers are still managing a tough balancing act. They’ll likely want to keep whittling down what’s in storage facilities, helping prices rise to a more sustainable level, before reversing course.
Even if demand exceeds supply for a while, that does not mean that we really have a problem,
Tonhaugen
Investors are now mostly focused on what will happen in August. Craig Erlam, senior market analyst at Oanda, thinks output will likely be able to increase again at that point.
Will TOP Ships (TOPS) & Seanergy Maritime (SHIP) benefit from the upcoming OPEC+ meeting?
Extending Cuts
While a consensus had emerged between Saudi Arabia, Russia and others to maintain the deepest level of cuts for one more month, that was contingent on other countries making solid promises to implement their reductions in full, the people said, asking not to be named because the information was private.
It’s unlikely that the OPEC+ meeting will happen on Thursday, said one person. Without assurances on compliance, Moscow and Riyadh warned that talks scheduled for June 9-10 may not happen either, the people said.
Saudi Arabia has long urged other members to share the burden of production cuts more equitably. Russia, which was often a laggard in the past but has stuck to its pledges this time, is also pushing for any extension to be conditional on compliance.
Broken Promises
Iraq and Nigeria, who have repeatedly flouted OPEC commitments during the past three years, made less than half of their agreed cutbacks last month, a Bloomberg survey showed on Monday.
Those countries are being asked to pump less than their quota in the coming months to make up for producing too much in May, the people said.
In what appeared to be a response to the pressure earlier this week, Iraq’s finance minister and acting oil minister, Ali Allawi, made an unusual Twitter appearance, saying the country is committed.
“Despite Iraq’s severe financial constraints, we’re addressing technical issues that will allow us to further reduce oil output,” he said.
His Nigerian counterpart Timipre Sylva posted a similar message on Instagram on Tuesday. He acknowledged that the West African country only made about half its pledged cuts last month, but promised that crude output will be within its quota by the end of June.
The original deal — struck in April as the coronavirus lockdown savaged oil demand — set out output reductions of 9.7 million barrels a day, or about 10% of global supply, for May and June. Saudi Arabia, Kuwait and the United Arab Emirates then made further voluntary cuts of about 1.2 million barrels a day for June, bringing the total OPEC+ curbs to almost 11 million barrels a day.
Under the current OPEC+ deal, supply cuts are meant to be eased to about 7.7 million barrels a day in July, followed by an additional tapering at the start of 2021.
