'If OPEC fails to extend cuts, prices will likely dip': KPMG Global Head of Energy

Oil prices jumped on Friday after OPEC+ decided to move up its meeting on extending production cuts. KPMG Global Head of Energy Regina Mayor joins Yahoo Finance’s On The Move panel to assess the state of oil markets.

Video Transcript

ADAM SHAPIRO: Welcome back to "Yahoo Finance." A very strong rally on Wall Street. The Dow itself just hit being up about 900 points. I want to look at crude oil, as well. It is trading up over 4% WTI at this moment. And one of the things we want to focus on is the upcoming OPEC meeting, that we believe is taking place this weekend, to help us understand the implications for the oil market. We're joined now by Regina Mayor. She is KPMG Global Head of Energy. Good to have you here.

REGINA MAYOR: Thanks for having me.

ADAM SHAPIRO: So what are the dangers with this OPEC meeting? Do they stick to the production cuts? Do they increase output? What should we focus on and what might they do?

REGINA MAYOR: I'm expecting that they will stick to the existing production cuts of 9.7 million barrels and that they'll extend those through July. A couple of reasons why I'm pretty confident that that's the outcome for tomorrow's meeting, number one, they didn't meet yesterday, they had to defer to Saturday. Number two, they've had really a lack of discipline around achieving the cut.

So only 74% compliance for the OPEC cartel has been in place. The big, bad actor has been Iraq. They have achieved less than 40% of compliance. So the machinations within the OPEC activity was around getting Iraq to comply and agree to come to the table. I believe, from the signals that they've sent, that that's what's happened and that's what will happen tomorrow.

And I think OPEC has learned that they don't want to surprise the market. What we saw on March 9, when WTI and Brent totally fell apart because they had a last minute disagreement and walked away, was very unsettling for the markets. I believe they've learned their lesson and they signal to the market and we'll see an extension of the cuts through the end of July.

JULIE HYMAN: And so therefore, Regina-- it's Julie, here, hey-- therefore, are we gonna see sort of a floor under oil, at this point, as a result of that coordination if you will? I mean, because we still have heard the refrain that OPEC is just not as important to the oil markets as it used to be. Given that, what does this do?

REGINA MAYOR: Well, I think their importance is still-- is still there. I can't-- I wouldn't say that they're not important. And I think that they've demonstrated they have the ability to definitely crater prices and the ability to somewhat ease them back when they have compliance in place.

So, you know, I think the key for them is gonna be watching what the shale producers do and to maintain this fragile alliance that they've created between Russia and the Saudis in particular, to try to drive more normalcy in the market.

I wouldn't say we're necessarily at a floor yet, though, Julie, because we're watching what the shale producers will do. And there are already two of them that have signaled that they're gonna increase production. I'm less worried about that, though I know OPEC will be watching it. You know, but Q2 performance across the board will be dire. And that will put a curb on US production, as well as rig counts that are still down 67% since the pandemic started.

So there are so many factors that come into play. Demand is increasing. That's making everyone more confident. Supply curves have been put into place. And I don't see a race to the bottom, like what we saw in March, because everyone is wearing a whole lot of scars from that activity.

AKIKO FUJITA: Regina, let's talk about that demand then. No question, we have seen a pickup when you consider the last two and a half months or so. Demand has basically been-- you know, the economy has basically been shut down. How significantly has that needle moved, though, as we've seen these economies reopen? When you look at the overall balance in the market, where does demand-- you know, how much of a ramp-up have we actually seen?

REGINA MAYOR: Well, I think what we're seeing in the price is a little bit more optimism around demand than it has actually translated into the results. Because we still have a 10% overhang of crude over the five-year average. We still have a 10% overhang of gasoline. So we're not eating into-- you know, we're not in a position of having inventory draws yet, overall.

But we're seeing activity. We're seeing movement. People are on the streets. I live in Texas, and, you know, we're driving around. We're taking road trips. We're going out to eat at restaurants. And I think that's emboldening people. And then I think we're also-- this is what surprised me, is air travel. And we're seeing that start to bump up pretty significantly, with airlines saying they're gonna increase flights by 50% to 70%. And that, I think, is making folks more encouraged about overall demand patterns.

ADAM SHAPIRO: All right. Regina Mayor is KPMG Global Head of Energy. Thank you for joining us.