OPEC+ extends deep oil output cuts through July
…As Corona lockdown eases & prices recover
The Organization of Petroleum Exporting Countries (OPEC) and its allies have agreed to extend historic output cuts through July, as Corona virus lockdown eases and oil prices made tentative recoveries.
The world oil body and its allies, notably Russia, said in a statement last weekend that it has decided to extend by a month the deep May and June cuts agreed in April to boost prices. Prices had plummeted owing to falling demand as countries around the world imposed strict lockdowns to stop the spread of the Coronavirus.
“All participating countries… agreed the option of extending the first phase of the production adjustments pertaining in May and June by one further month,” OPEC said in the statement. Under the terms of the April agreement, OPEC and the group 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. AFP quoted current OPEC president, Algerian Oil Minister Mohamed Arkab, saying that the agreed cut for July was 9.6 mbpd, just slightly below the 9.7 mbpd for May and June. The OPEC boss assured that oil ministers from key producers will meet monthly to assess the agreement, he added.
Meanwhile US Energy Secretary Dan Brouillette has welcomed the extension of cuts. “I applaud OPEC-plus for reaching an important agreement today which comes at a pivotal time as oil demand continues to recover and economies reopen around the world,” he was quoted from a tweet. Analysts had expected the May-June cuts to be extended by at least another month, if not longer.
Although more countries around the world are gradually moving out of lockdown, crude consumption has not returned to pre-confinement levels, which were already comparatively low.
“Today’s deal is a positive development and, unless a second Covid-19 wave hits the world, it will be the backbone of a quick recovery for the energy industry,” Bjornar Tonhaugen of Rystad Energy was also quoted. He referred to a feared fresh wave of new coronavirus infections.
“The 9.7 million bpd production cuts were already working, extending them an extra month will tighten (the) market more quickly,” Ann-Louise Hittle of Wood Mackenzie was also quoted.
Before the meeting, there were fears over 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 mbpd in May, less than planned, with Iraq and Nigeria seen as the most resistant.
OPEC said all meeting participants agreed Saturday that countries that failed to comply fully so far were willing 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.
Both had slumped to historic lows in April, with Brent falling as low as $15 and WTI briefly entering negative territory. The April deal was signed after days of wrangling between major players, whose revenues have been ravaged by the collapsing oil market this year.
The next OPEC meeting and its allies has been scheduled for Dec 1 in Vienna.
Chibisi Ohakah, Abuja