The 11th OPEC and non-OPEC Ministerial meeting concluded yesterday that saw an agreement reached to extend the big production cuts announced by the group known as OPEC+ in April by another month, which will see the 9.7 million bpd stay off the market for July now.
OPEC+ initially agreed in April to cut 9.7 million bpd or almost 10 per cent of global supply in May and June, but was expected to ease these cuts from July to 7.7 million bpd from July to December but that is no longer the case.
“Demand is returning as big oil-consuming economies emerge from pandemic lockdown. But we are not out of the woods yet and challenges ahead remain,” the Saudi energy minister, Prince Abdulaziz bin Salman, told the video conference of OPEC+ ministers on Saturday.
An additional 1 million bpd production cut made by Saudi Arabia on top of the group-wide cuts will also end this month. While, Mexico, which has resisted participating since the deal’s inception, will not take part in this latest round of cuts, reducing the tally slightly to around 9.6 million bpd from next month.
In a statement, OPEC said: "That it was vital that DoC Participants, and all major producers, remain fully committed to efforts aimed at balancing and stabilising the market. In this regard, it was noted that global oil demand was still expected to contract by around 9 mb/d for the whole of 2020."
Rystad Energy’s Head of Oil Markets Bjornar Tonhaugen: "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. That is due to the oil stocks decrease that we will see as a result of the production deficit. Stocks are now what keep prices at relatively low levels and when the quicker they fall, the faster we will see prices rise."
Opec+ demanded countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.
Iraq produced 520,000 bpd above its quota in May, while overproduction by Nigeria was 120,000 bpd, Angola’s was 130,000 bpd, Kazakhstan’s was 180,000 bpd and Russia’s was 100,000 bpd, Opec data showed.
Tonhaugen added: "The only potential Achilles heel, in what seemingly is an expected extension of current deep cuts through July, is the caveat of sub-compliant members requirement to compensate for lack of compliance to date in the coming months of July-September. Countries such as Iraq and Nigeria will struggle, we believe, to compensate fully, which puts increased pressure on the coherence of the alliance."
OPEC confirmed that the next joint ministerial monitoring committee, known as the JMMC, will meet monthly until December to review the market, compliance and recommend levels of cuts. JMMC’s next meeting is scheduled for 18 June.