The 13-member OPEC and other oil producing nations such as Russia and Mexico are to extend output cuts by a month to the end of July. AFP
Members of the Organisation of the Petroleum Exporting Countries (Opec), led by Saudi Arabia, and other key oil producers agreed on Saturday to extend historic output cuts through next month, as oil prices tentatively recover and coronavirus lockdowns ease.
The 13-member cartel and its allies, notably Russia, decided to extend by a month deep May and June cuts agreed in April to boost prices, Opec said in a statement.
But Mexico, which had already made clear ahead of the talks that it “could not adjust . . . production further”, announced that it would not be complying.
Oil prices have plummeted as a result of falling demand as countries around the world impose strict lockdowns to stop the spread of the new coronavirus.
Opec said: “All participating countries . . . agreed the option of extending the first phase of the production adjustments pertaining in May and June by one further month.”
Under the terms of the April agreement, Opec and the so-called Opec Plus (Opec+) pledged to cut output by 9.7 million barrels per day (mbpd) from May 1 until the end of June.
The cuts were then to be gradually eased from July, to 7.7mbpd until December.
Opec+ comprises the cartel’s member nations plus 10 extra crude producers – Russia, Mexico, Kazakhstan, Azerbaijan, Bahrain, Brunei, Malaysia, Oman, Sudan and South Sudan.
Algerian Minister of Energy and Mining Mohamed Arkab, who currently holds Opec’s rotating presidency, told AFP that the agreed cut for July was 9.6mbpd, just slightly below the 9.7mbpd for May and June.
Oil ministers from key producers will meet monthly to assess the agreement, he added.
US Secretary of Energy Dan Brouillette 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 said in 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,” said Bjornar Tonhaugen of Norwegian-based energy research and business intelligence firm Rystad Energy AS, referring to a feared fresh wave of new coronavirus infections.
“The 9.7mbpd production cuts were already working, extending them an extra month will tighten [the] market more quickly,” said Ann-Louise Hittle of UK-based oil and gas consultants.
A bone of contention ahead of the meeting had been the willingness of each country to abide by the agreed production quotas.
Paris-based data intelligence company Kpler SAS said Opec+ reduced output by around 8.6mbpd in May, less than planned, with Iraq and Nigeria seen as the most resistant.
Opec said all meeting participants agreed on Saturday that countries that failed to comply fully so far were willing to make up for it in July, August and September.
Nevertheless, it was precisely that earlier failure that led Mexico on Saturday to refuse to extend its cuts.
“There are other countries that extended the cuts to July. We told them no, that we are maintaining the agreement signed in April. There is no problem,” Mexico’s Secretary of Energy Rocio Nahle told reporters during a visit to a petrochemical plant in Veracruz state.
She said Mexico “fully respected” the original agreement, under which it agreed to cut production by 100,000 barrels a day in May and June, but other countries “did not respect it”, without specifying which ones.
