Global oil market fundamentals are looking bullish with the OPEC+ production cuts, constraints of exports in Nigeria, and the U.S. sanctions on Iran and Venezuela supporting this position. While the volatility of oil prices has increased due to financial analysts putting an emphasis on Trump’s apparent Twitter agreements with OPEC leaders, market fundamentals remain very bullish.
The jolly ride in the oil market is however under threat as a new threat seems to be looming as OPEC+ prepares to meet at its June 25-26th Ministerial Meeting in Vienna. The unity of the organization has come under questioning as several major member countries are facing not only external sanctions but threats of a total internal implosion of their respective regimes.
Reports about Iran having trouble to pay not only its own bills, but also its proxies in Lebanon, Syria and Iraq, is an indication that the current regime is struggling. This is in addition to the report that there are no new oil contracts been reported between Iran and its main clients, China and India. Things might get even worse for the leading oil exporter as its strongest supporter in OPEC, Venezuela appears to be on the brink, no thanks to the heated polity in the country.
Based on the current situation, it can be deduced that OPEC’s internal structure is fragmenting. It worth noting that while the Saudi-led OPEC+ production cut strategy remains in place, its effect has been significant due to the negative repercussions of the sanctions on Iran and Venezuela.
To further worsen the situation at OPEC internally, Nigeria, Africa’s main oil producer reports that it is not even able to sell some of its cargoes. Nigeria has already cut its selling prices of a basket of May-loading crude oil grades, as buyers were not showing an interest in contracts for cargoes offered at and above a premium of $2 compared to dated Brent.
OPEC is set to focus on defusing pressure to increase production in the coming weeks, while the Saudi-led faction will likely confront the Tehran-Venezuela axis.
The meeting of OPEC in Vienna is looking to be a repeat of what happened in 2018 with the major difference being that Tehran has lost much of its internal OPEC powers as a result of Qatar’s departure and the implosion of Venezuela.
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