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Samuel Burman from Capital Economics expects the OPEC+ to agree an extension of the current 9.7 million bpd production cut for at least another month in its next meeting, which would stabilize oil prices. 

Key quotes

“We estimate that OECD oil stocks are now at a record high of just under 4.7 billion barrels, which is significantly above their five-year average (OPEC’s traditional target for balancing the market). Additionally, stocks in the emerging world have also risen strongly in part because China and India have taken advantage of low prices to increase their strategic reserves.”

“We estimate that global consumption will fall to just over 85 million bpd in Q2 2020, down from about 100 million in Q2 2019. We expect demand to revive later in the year and tip the market into a small deficit, but clearly there is significant uncertainty about the pace and scale of any recovery in demand.

“We suspect that Saudi Arabia and Russia will initially agree to roll over the deeper cuts for just one month to give the overproducers time to move closer to quota. This way, they can defer a decision on whether or not to extend the cuts or to lift output quotas until July.”

“If OPEC+ rolls over its current output quotas, we would not expect a significant price reaction as it appears to be largely factored into the market. If it doesn’t, prices could fall. However, this would probably be a temporary blip as we still expect demand to revive and stocks to start to fall by the end of this year.”