OPEC and it’s OPEC+ partners met by video conference on Saturday and agreed to extend the largest cuts in the historic April agreement for July. Undeterred by apparent inability of Mexico to participate in cuts past June, the final cut amount agreed by the group is 9.6 million b/d.
Press reports earlier this week indicated that lack of compliance by Iraq and Nigeria was a potential hurdle to an extension of the deep cuts and the meeting itself. OPEC today received commitments from any members in under-compliance to make up the cuts in future months.
In our June 3 client note, we explained that OPEC was unlikely to let go of recent oil market momentum as the reason for our bullish view on an extension of another month or two.
We think its possible for OPEC to extend the cuts again in August since Saudi Arabia and other Gulf producers had favored a two-month extension. A compromise with Russia resulted in a one-month extension.
An OPEC technical committee will meet in mid-June to assess market conditions and compliance to advise the group should further extension of the deepest cuts be necessary.
However, if another 9.6 million b/d extension is not implemented, the cuts will continue at a lower 7.7 million b/d in August for the rest of 2020, according to the April agreement. OPEC is not only trying to address the big impact on demand declines but also begin to address huge global inventories in storage.
The April agreement calls for cuts of 5.8 million b/d to continue for the period of January 2021 to April 2022.
OPEC’s next meeting is November 30 in Vienna, Austria but it reserved the option to meet again by video conference before this date to take special action outside of the April agreement.
Next on the oil market watch list are: 1) whether Saudi Arabia continues its voluntary 1 million b/d cut on top of its commitment in the deal; and 2) possible signs of a restart in production in Libya with an apparent ceasefire in the military conflict that has removed close to 1 million b/d from the market.
