OPEC+ Meeting on June 4 - Comments from RBC Capital

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dan_s
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OPEC+ Meeting on June 4 - Comments from RBC Capital

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May 30, 2023
OPEC+ Preview: Decision Desk
Analysis Ahead of This Week’s OPEC+ Meeting in Vienna

When OPEC meets this Sunday in Vienna, we believe the two policy options on the table are a
deeper cut or staying the course. Despite strong Russian output and their increasing share in Asian
markets, we are still not envisioning a return to the March 2020 market supply flood at this
juncture.

 As we have noted previously, the decision to hold an in-person meeting in Vienna one month
before everyone returns for the OPEC Seminar does raise the prospect that the group could
decide to do a deeper cut to provide further support to the market as it continues to contend
with broader macro concerns and demand softness. As of late last week, it seems no decision
had been made on the best course of action, as leading players waited to see how key events
played out such as the US debt ceiling discussions.

 If there is a bias to the OPEC leadership at present, it appears to be one of active management
and striving to ensure that the group is not completely overtaken by macro headwinds or
souring market sentiment. As we have previously written, a number of investors continue to
point out that the 3.5 mb/d of announced production cuts since October have failed to propel
Brent prices above pre-October 5th meeting levels of $83/bbl. And yet, we think OPEC would
still respond by asking: “Where would prices be in the absence of such interventions?”

 There is also a corner of the market that thinks the group is poised to throw in the towel and
adopt an “every producer for themselves” approach. Again, we would remind our readers that
there seems to be little nostalgia for the 2015-16 Ali Al-Naimi “no restraints” policy. Not only
did it do considerable damage to the fiscal balances of the OPEC producers, but when the group
returned to active market management, they found themselves having to dig out of a very deep
inventory surplus.

 We also do not believe that Saudi Arabia is so aggrieved by the loss of market share in Asia
that it’s seeking to repeat the March 2020 production battle with Moscow. While Russian
production continues to defy expectations of a collapse, we still think it is hard to make the
case that Moscow’s best energy days are ahead and that it will be easy for them to maintain
their current production given the sanctions headwinds. We see Moscow’s move to change its
oil tax regime from a Urals to Brent-pegged indicator to calculate taxes to curtail revenue losses
from the steep discounts on Urals vs. Brent as an indication that Moscow is scrambling to keep
the revenue stream going, not a sign of strength.
Dan Steffens
Energy Prospectus Group
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