The Organization of the Petroleum Exporting Countries (OPEC) along with Russia and allies who are collectively referred to as OPEC+ have agreed to continue oil production cuts until the end of July.
Extending the deal to reduce production has boosted crude prices in the past two months as the output as decreased by almost 10% of global supplies from the market. The group led by Saudi Arabia also urged nations like Nigeria and Iraq to comply with the agreement by making extra cuts from July to September to compensate for surpassing production quotas in May and June.
OPEC+ had originally accepted in April that it would decrease production and supply by 9.7 million barrels per day (BPD) during May-June to improve prices that fell due to the coronavirus crisis. Those cuts were expected to be reduced to 7.7 million BPD from July to December.
“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.
Prince Abdulaziz bin Salman
Energy Minister of Saudi Arabia
Saudi Arabia, OPEC’s leader in principle, and Russia have to conduct a balancing act of pushing up oil prices to match their budget requirements while not pushing them above $50 a barrel to ensure there is no scope for the resurgence of rival U.S. shale production.
We need to wait and see whether Saudi Arabia, the UAE and Kuwait would prolong their supplementary, voluntary cuts of 1.18 million BPD after June which are not part of the agreement.
As global lockdowns are relaxed, oil demand is anticipated to surpass supply sometime in July but OPEC still has to get rid of its 1 billion barrels of excess oil stocks it collected since March.
Next scheduled meetings for OPEC and OPEC+ are expected to happen between Nov. 30 – Dec. 1.