OPEC+ meeting: How it will impact oil prices

With the OPEC+ meeting set for June 4th, Bill Baruch, Blue Line Futures President, breaks down what it means for oil prices.

Video transcript

RACHELLE AKUFFO: 2% on Friday, easing on news of the US debt ceiling deal. But now all eyes are on this weekend's OPEC plus meeting. For now, there's no clear direction if the group will announce additional cuts. Last month's move to cut around 1.16 million barrels per day came as a surprise. This as Russia's oil exports have remained elevated, not slowing to the extent of the output cuts promised, pushing a rift between Russia and Saudi Arabia. Now, Blue Line Futures President Bill Baruch joins us now with what to expect from OPEC plus this weekend and what it means for oil. Thank you for joining us this morning here.

So we were getting a bit of mixed messaging about, you know, potentially people trying to short oil, that warning we got out of Saudi Arabia. But then you also have Russia saying, you know, don't expect any cuts. What are your expectations going into these meetings?

BILL BARUCH: I think they're going to stand pat here. You know, they cut-- they announced that previous cut at the start of April and took effect in May. And, you know, they haven't announced another cut-- a follow up cut per se within three months of that initial cut. So I don't think that they're going to change anything at this time.

You know, they-- markets are still anticipating a deficit in the back half of this year as demand picks up and China growth reinvigorates. And I'm on board with that. So I think they're going to be patient here. Though, there is some friction growing between Saudi Arabia and Russia, as Russia continues to produce over that 500,000 barrels per day mark that they were supposed to hit on.

JULIE HYMAN: Hey, Bill, it's Julie here. Just to kind of zoom out a little bit, we have seen oil really wavering lately. Yes, we've got a little bit of a rebound today, but do you think that we're going to have a rangebound situation through the summer, or do you think there's going to be a breakout, one way or another, whether it's the OPEC plus meeting or something else that's a catalyst?

BILL BARUCH: You know, I do think that we're going to see oil remain buoyant. I think the tailwinds, you know, as I mentioned, would be China growth coming back on. I think we're at a-- if not, quite there maybe some peak pessimism from-- on the China story. And Chinese manufacturing PMI gave us a light at the end of the tunnel. US demand remains robust.

And the White House will also have to look to replenish that SPR. So, you know, in the next month, you know, we're going to look at that from SPR releases to potentially having to replenish that. And I think that's going to become a tailwind for sentiment as well.

And then when you get these big wash outs like we had over the past week, a lot of the time if we're able to start to stabilize, you could quickly see traders and managers reposition. I think the landscape within the equity space for individual names is very robust right now too. I mean, a lot of these names are hitting against support right now. And for instance, before the show, I just, you know, added things like Marathon Petroleum, personally, and looking at things like that, that there is a good outlook over the summer, potentially, improving refinery margins as well.

BRAD SMITH: So that actually started to get to my next question is, would you be playing or fading specific oil and gas names going into this OPEC meeting? And it sounds like at least one of those names caught your attention, but what's the profile that you would be looking for across some other players?

BILL BARUCH: Well, we look for divergences within the landscape to bring opportunity. And, you know, this week, I managed a commodity fund. And this week we had a sharp move lower. And I think one of the best ways rather than-- for the viewers out there, rather than looking at an option skew, it may kind of gloss your eyes over talking about something like that, but you go to the CME group, they have that Fed watch tool that everybody knows about, but they also have an OPEC tool-- OPEC watch tool. And it's-- now, it's not as perfect as that Fed watch tool. I think the Fed watch tool is amazing. The OPEC watch tool actually, you know, it too aligns off option's volatility.

So you have a big sell off because of a sort of change in narrative that took place. You go back last week, Saudi Arabia-- and within that, Saudi Arabia energy minister within that interview, you know, I think his comments were taken out of context that they're going to bring [INAUDIBLE] to the shorts. But I think he was referring back. So kind of when people heard about that, they heard about some of the rift within Russia and Saudi Arabia, we saw a big collapse in oil prices, in first, that Chinese manufacturing PMI. The state run number on Monday was-- or Tuesday night was a bad first read.

So we had some heavy selling. What that did was, you know, push the options to you to really favor the-- puts were overpriced. So within that puts being overpriced, that OPEC watch tool showed a probability, and still I think does, a 50/50 probability that they cut-- I'm sorry, that they add production or they leave unchanged. So I look for things like that bringing opportunity where puts are overpriced. You can actually look to sell some puts and buy some calls in some sort of risk reversal sort of move, or-- you know, that's the way we look to play it.

Now, as we've rebounded, I've rolled that out to more, you know, limited risk call spread. Kind of looking into this weekend, I think there is a bit of a tailwind for crude oil to trade higher. But there's opportunity, you know, as you get these sharp moves within the market that I think you've got to be aware of. And that's how you want to look to take advantage of that, and then position out, you know, within your broader thesis. And our broader thesis remains that crude oil has a pretty good shot this year to be back above $80.

RACHELLE AKUFFO: And how much of that is tied in to what you're expecting in terms of the China demand side of the story?

BILL BARUCH: I think-- I mean, leaning on what the IAEA said earlier this-- well, back in May, you know, they do expect China reopening because the reopening tailwinds haven't shown up. We do think they will. And [INAUDIBLE] everybody gets really negative, as they are currently, is typically when you can see something like that start to revert. Now, we have, again, a light at the end of the tunnel with the private tax and survey of Chinese manufacturing PMI showing an expansion of Wednesday night. That really got crude oil started off of that floor, getting it back above $68, and now we find ourselves here back above 71. I was looking at 71 as a pretty big resistance.

If that story continues to build tailwinds, I think crude oil, you know, could be a major driver for crude oil to retest $80. The IEA seems to think so. I think OPEC plus is still looking at those Chinese tailwinds. And China demand for crude oil products has remained strong within this sort of deteriorating growth environment. So if they pick back up, I think that could be a pretty robust component within a bullish narrative.

BRAD SMITH: All right. A lot to keep track on going into this OPEC plus weekend meeting. Blue Line Futures President Bill Baruch joining us today. Thanks so much for the breakdown and the context there, Bill.