OPEC+ wants concrete rate cuts before factoring impact on oil demand, Saudi energy minister says

The prominent OPEC+ oil producers’ alliance is awaiting concrete central bank action on interest rates before factoring in the potential impact on the energy demand landscape, according to Saudi Arabia’s energy minister.

“Central banks, with all respect, they’re flip-flopping [on their messaging],” Prince Abdulaziz bin Salman said during a Sunday press briefing, in response to a question on whether OPEC+ supply cuts could reinject inflationary pressures worldwide, at a time when central banks are reining in consumer price increases and shyly inching toward possibly cutting interest rates.

Earlier on Sunday, the OPEC+ group — which combines the Organization of the Petroleum Exporting Countries and its allies — agreed to extend official output cuts until the end of next year. A subset of the coalition will stretch out two further layers of additional voluntary supply reductions: This subgroup of eight countries will prolong a 1.7 million-barrels-per-day tranche all the way through 2025, and a larger 2.2 million-barrels-per-day cut until the end of the third quarter.

The production strategy decisions come at a time when OPEC’s own forecasts show a 2.25 million barrel-per-day increase in demand, according to the Monthly Oil Market Report of May. The imminent summer driving season and the end of refinery maintenance in China are also set to exacerbate the call on crude in the short term.

Energy costs spiked worldwide in the wake of Russia’s full-fledged invasion of Ukraine, aggravating the economic downturn that followed the Covid-19 pandemic. Global institutions have previously mentioned energy prices as underpinning inflationary concerns. In turn, the piled-on inflation has muzzled oil demand.

Expectations have mounted over the timeframe and number of rate cuts likely to be carried out by global central banks, whose nations battle indefatigably sticky inflation. The European Central Bank is widely projected to implement a long-awaited reduction during its meeting of June 6, even as inflation in the euro zone logged a recent annual bump to 2.6% in May, from 2.4% in April.

Policy easing was also anticipated in the short term from the U.S. Federal Reserve, but a recent spate of stronger-than-expected economic data and indications from policymakers dimmed those prospects.

“Show me any central banker who [has] a determination to give people a trajectory of when and where and how they are going to bring interest rates down,” Saudi Arabia’s Abdulaziz bin Salman said amid the ongoing ambivalence, stressing that the group awaits “more certainty on the overall economic trajectory that will probably cause demand to increase with a clear path.”

The OPEC+ coalition has repeatedly said that it will step in to promptly and flexibly address changes in the oil market, as needed. On Sunday, the Saudi energy minister defended that the alliance’s latest production strategy is based off the current market picture.

“As it is today, we believe that this thing requires us to give the market clarity on what signals that we are issuing, and it is paramount for people to take an example of what we are doing,” he said.