​Rystad Energy’s daily market comment from our Head of Oil Markets Bjornar Tonhaugen:

It’s all about the OPEC+ meeting. As it was initially intended to happen on Thursday, when that did not materialize, prices fell because traders sensed a lack of agreement between the extended group’s producing countries.

Now the mood has changed again and prices rose, following news that a consensus may have been reached and a meeting is across the corner.

It now seems very likely that OPEC+ will meet tomorrow to hash out a deal to extend the current May-June deep cuts for one more month.

Rumors have it that a breakthrough was reached with Iraq last night and crude prices resumed gains this morning, both for Brent and WTI.

Iraq has struggled to comply fully with their 1.061 million bpd target cut, delivering only around a 400,000 bpd cut for the first month of May 2020.

Assurances and agreements with IOCs operating in Iraq has now been reached, and Iraq has a higher chance of being able to reduce production from the giant IOC-operated fields in the Basrah region than ever before.

However, we are still skeptical that Iraq will be able to deliver the 1 million bpd cuts in full, and for now see an additional cut of 100,000-200,000 bpd in July as more likely.

The more interesting question for the oil market right now is what happens from August onwards. As long as the demand recover stays intact, we believe the crude market will be in deficit also in August and onwards, despite cuts being tapered by 2 million bpd to the scheduled 7.7 million bpd level. That will ensure a fundamental support for prices, while also spurring a quicker reactivation of curtailed US oil production, and eventually frac crews ending their holidays early. Indications show that a bit more than 300,000 bpd from shut US production is actually coming back online already from June as a result of the current price levels.

OPEC+ is fully aware of this balancing act as they prepare to meet virtually over the weekend.

And the producers are not just interested only at reactivating production, they have a stock build that they want to trim as well. The deficit will help reduce that burden and bring back healthier price levels sooner than it was maybe thought.

So, even if demand exceeds supply for a while, that does not mean that we really have a problem to source oil. Oil is there, lots of it, waiting to be drawn from storage facilities.