3 Takeaways From the OPEC Seminar Every Oil Trader Should Pay Attention to

OPEC just held its semi-regular seminar in Vienna. This gathering is not a regular OPEC or OPEC+ meeting, where ministers assess the market and set production quotas. Rather, it is an informational meeting where OPEC ministers, delegates, and top analysts in the oil market discuss trends and new developments.

However, important messaging from key OPEC players can yield information about their thinking on future production and can move the market.

Here are some of the important notes for traders from the conference so far:

1. Saudi Arabia, Russia (Separately) Announced Oil Cuts Right Before the Conference

Saudi Arabia decided to extend its voluntary 1 million bpd production cut through the end of August. Russia plans to cut oil exports by 500,000 bpd in August. Algeria also committed to cutting 20,000 bpd in August.

Russia’s plans always need to be taken with a grain of salt, as Russia often doesn’t follow through with the production changes it announces. However, the export cuts could be because Russia needs more oil domestically and is planning to funnel this crude oil to its own refineries.

But, now that Saudi Arabia has extended its voluntary cuts another month, traders should look for pressure to mount for Saudi Arabia to extend through the end of 2023, especially if global economic sentiment doesn’t pick up.

2. Saudi Arabia Can Extend Cuts Through 2023 — if Warranted

In an interview at the OPEC Seminar, Aramco CEO Amin Nasser seemed cautiously optimistic about demand, saying that recessionary fears are everywhere and Chinese economic growth is still picking up.

He was especially optimistic about jet fuel demand growth and noted that jet fuel demand is still below pre-COVID numbers, so there is room to grow there. He did not offer any timeframe for improvement in China’s economy, which could mean that he thinks Chinese demand may not improve to pre-COVID levels before the end of 2023, despite analysts’ forecast for H2.

However, Aramco (TADAWUL:2222) has no reason to be concerned because its long-term position is strong. Aramco recently signed two new supply deals that would increase Saudi Arabia’s crude oil shipments to China by over 1 million bpd in the next five years, so Saudi Arabia can easily cut production now, as future demand for its oil is assured.

Traders should not assume that Saudi Arabia needs money now – despite major expenditures, the country has plenty of cash to cut production and lean on oil prices in the $70s because they will make more money later.

3. OPEC Wants to Expand and Is Looking for New Members

It seems that OPEC is looking to capitalize on the success of the larger OPEC+ group and entice OPEC+ members to join the cartel as full members.

It just officially invited Azerbaijan to join, although the Azeri energy minister said that Azerbaijan is not currently considering joining the group. The more oil-producing nations that join OPEC, the more influence over oil prices the group potentially has.

Azerbaijan currently produces around 500,000 bpd of oil, though, at one time (2009), it produced as much as 1 million bpd.

That would put Azerbaijan on the lower end of producing nations in OPEC if it was to join. The move may be more political than economic in nature, though, as joining OPEC might help Azerbaijan balance out Russian influence in the country.

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Disclosure: The author does not own any of the instruments mentioned in this report.