OPEC members led by Saudi Arabia decided Saturday to extend deep output cuts through July, but a final deal depends on the agreement of other producers, as oil prices tentatively recover as coronavirus lockdowns ease.
The 13-member cartel decided to extend by a month historic May and June cuts agreed in April to boost prices, Algerian Oil Minister Mohamed Arkab, who currently holds OPEC’s rotating presidency, told AFP.
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Other oil producing nations, such as Russia and Mexico, joined the Organization of Petroleum Exporting Countries in a second meeting and have yet to agree to the decision.
Prices have plummeted over falling demand as countries around the world have imposed strict lockdowns to stop the spread of the new coronavirus.
Under the terms of the April agreement, OPEC and the so-called OPEC+ pledged to cut output by 9.7 million barrels per day (bpd) from May 1 until the end of June.
The cuts were then to be gradually eased from July, to 7.7 million bpd until December.
The April deal was signed after days of wrangling between major players, whose revenues have been ravaged by the collapsing oil market this year.
Analysts have expected the May-June cuts to be extended by at least another month, if not until the end of the summer or even until the end of the year.
Although more countries around the world are gradually moving out of lockdown, crude consumption has not returned to pre-confinement levels, which had already been comparatively low.
– Respecting quotas –
As in previous negotiations, discussions could prove particularly tense between Russia and Saudi Arabia, the deal’s two heavyweights who became involved in a short but bitter price war when previous talks broke down in March.
Mexico, which held up the April deal before it was eventually finalised, has also already ruled out any further drop in oil production with its president, Andres Manuel Lopez Obrador, saying on Friday his country “could not adjust our production further”.
Another bone of contention ahead of the meeting had been the willingness of each country to abide by the agreed production quotas.
According to data intelligence company Kpler, OPEC+ reduced output by around 8.6 million bpd in May, a smaller cut than planned, with Iraq and Nigeria seen as the main culprits.
Nigeria’s Ministry of Petroleum Resources said in a tweet Saturday that it backed discussions to allow countries which failed to conform fully to the agreed cuts in May and June to make up for it in July, August and September.
Despite the difficulties, the output cuts have helped support oil prices, which rose to around $40 per barrel at the start of June for both the US benchmark, West Texas Intermediate (WTI), and Europe’s Brent North Sea contracts.
Around April 20, both had slumped to historic lows, with Brent falling as low as $15 and WTI even entering negative territory.
Saturday’s meeting had been originally scheduled for next week, but was brought forward at the suggestion of Algeria’s Arkab.
Julia ZAPPEI with Benoit Pelegrin in London