That leaves the Organization of Petroleum Exporting Countries and its partners with a decision to start pondering on Tuesday: whether to pump more oil or hold back while the outlook is still so mired in uncertainty.
Keeping output steady would support the market against the twin risks of renewed virus outbreaks and a potential flood of exports from Iran if it renews a nuclear deal with the U.S. and other world powers. But with Brent crude already up 37% this year to more than $70 a barrel, that could hurt the global economy and worsen the inflationary pressures fixating Wall Street.
“There are many moving parts,” OPEC Secretary-General Mohammad Barkindo said after preliminary consultations on Monday.
At their virtual meeting, ministers are expected to press ahead with a gradual increase already penciled in for July, completing the return of just over 2 million barrels a day since May. According to a historic deal struck in the depths of the oil crisis last year, the group has committed to holding supply levels from then until early 2022. But a tight market may call for the agreement to be revised.
Delegates said initial discussions would begin on Tuesday about the alliance’s moves after July. No decision will be made, they said. But oil and bond traders will be closely scrutinizing their comments for any hints.
OPEC’s Joint Technical Committee estimates that by the end of July stockpiles in developed nations will be below the 2015-2019 average — a key benchmark for the group. Between September and December, inventories will be depleted at a brisk clip of more than 2 million barrels a day.
That’s led many observers to conclude OPEC+ will need to open the taps in the second half of the year.
Oil prices will face further upward pressure unless the cartel boosts output, Fatih Birol, the head of the International Energy Agency, told Bloomberg Television on Tuesday.
“The market is now facing the exact opposite dilemma of April 2020,” said Louise Dickson, an analyst at consultancy Rystad Energy. “Producers now have just as delicate of a task to bring back enough supply to match the swiftly rising oil demand. If markets over-tighten, a flare-up in prices could jeopardize the global economic recovery.”
The oil minister of Kuwait, which is usually closely aligned with Saudi Arabia on OPEC+ matters, has said that energy markets will be able to absorb higher oil supplies from the group.
But the demand outlook remains beset with uncertainties, particularly in Asia. Indian energy consumption has taken a big hit as Covid-19 rages through the country. Japan and Malaysia, key consumers of OPEC’s crude, recently announced tougher measures to deal with new infections.
“The resurgence of Covid-19 cases in some Asian and Latin American countries remains a source of concern,” the JTC said in its report.
Iran will be another critical factor. The Islamic Republic is in talks to revive a 2015 accord that limited its atomic activities in return for U.S. sanctions relief. Tehran is keen to conclude negotiations before it holds presidential elections on June 18.
Russian and Iranian officials involved in the nuclear talks in Vienna said on Monday there were still complications. They hinted that the negotiators may not be able to strike a deal during the current, and fifth, round of talks.
Iran said on Tuesday it hoped to reach an agreement by the time President Hassan Rouhani’s administration ends in August.
“We’re close to an understanding over principal, nuclear issues,” Ali Rabiei, a government spokesman, told reporters. “Some differences” related to sanctions imposed by former U.S. leader Donald Trump still need to be worked out, he said.
If Washington does lift sanctions, Iran may be able to ramp up exports quickly. Analysts estimate daily output could rise to about 4 million barrels from 2.4 million.
OPEC’s Barkindo said that Iran’s comeback would be “orderly and transparent,” causing no upset to the oil-market stability that other OPEC+ nations have toiled to achieve.
As ministers weigh the risks of bringing more oil back onto the market, the debate may well re-open old fault-lines within the alliance.
Riyadh and Moscow have often diverged on how quickly to bolster output, with the kingdom typically advocating restraint and Russia more impatient to expand sales volumes. The United Arab Emirates, another key player, has also shown eagerness to boost exports.
“It remains a delicate balancing act,” said Bill Farren-Price, a director at research firm Enverus and veteran observer of the cartel.