Opec and Russia extend record oil output cuts to end of July

Opec and allied nations agreed on Saturday to extend a production cut of nearly 10 million barrels of oil a day through the end of July, hoping to boost energy prices hard-hit by the coronavirus pandemic.

Ministers of the group and outside nations like Russia met via video conference to adopt the measure, aimed at cutting out the excess production depressing prices as global aviation remains largely grounded due to the pandemic. It represents some 10% of the world’s overall supply.

Algerian Oil Minister Mohamed Arkab, the current Opec president, warned attendees that the global oil inventory would soar to 1.5 billion barrels by the mid-point of this year.

“Despite the progress to date, we cannot afford to rest on our laurels,” Arkab said. “The challenges we face remain daunting.” That was a message echoed by Saudi Oil Minister Abdulaziz Bin Salman, who acknowledged “we all have made sacrifices to make it where we are today.” He said he remained shocked by the day in April when US oil futures plunged below zero.

“There are encouraging signs we are over the worst,” he said.

Russian Energy Minister Alexander Novak similarly called April “the worst month in history” for the global oil market.

The decision came in a unanimous vote, UAE Energy Minister Suhail al-Mazrouei wrote on Twitter. He called it a “a courageous decision and a collective effort deserving praise from all participating producing countries.”

Crude oil prices have been gaining in recent days, in part on hopes Opec would continue the cut. International benchmark Brent crude traded Saturday over $42 a barrel. Brent had crashed below $20 a barrel in April.

The oil market was already oversupplied when Russia and Opec failed to agree on output cuts in early March. Analysts say Russia refused to back even a moderate cut because it would have only served to help US energy companies that were pumping at full capacity. Stalling would hurt American shale-oil producers and protect market share.

Prices collapsed as the coronavirus and the COVID-19 illness it causes largely halted global travel.

Under a deal reached in April, Opec and allied countries were to cut nearly 10 million barrels per day until July, then 8 million barrels per day through the end of the year, and 6 million a day for 16 months beginning in 2021.

However, some countries produced beyond their quotas set by the deal. One of them was Iraq.

On Saturday, Iraq Oil Minister spokesman Assem Jihad said in statement that Baghdad had “renewed its full commitment” to the Opec+ deal.

“Despite the economic and financial circumstances that Iraq is facing, the country remains committed to the agreement,” Jihad said.

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, according to Opec+ data.

Iraq has told Opec it would start an urgent plan to cut its oil production gradually to fully comply with its quota, an Opec delegate said on Saturday.

Iraq’s plan would include reaching a deal with oil majors to start significant cuts from Iraqi oilfields where they operate and reaching agreement with the Iraqi Kurdish region to contribute to the total production cut, the delegate told Reuters.

Analysts had expected Opec and the other nations to extend the cuts of 10 million barrels per day by one more month, but not longer, since the level of demand is still fluctuating.

“If the demand is great, countries like Russia will want to produce more oil, so they probably won’t want to get locked into a longer-term deal that may not help them,” said Jacques Rousseau, managing director at Clearview Energy Partners. An Opec+’s joint ministerial monitoring committee, known as the JMMC, would now meet every month until December to review the market, compliance and recommend levels of cuts.

The next JMMC meeting is scheduled for June 18 while the next full Opec and Opec+ meeting will take place Nov 30-Dec 1.

Oil prices rose on Friday after an unexpected fall in the May US jobless rate and Opec’s decision to bring forward to Saturday discussions on whether to extend record production cuts.

Brent crude futures settled up $2.31, or 5.8%, at $42.30 a barrel, surging 19.2% on the week. US West Texas Intermediate (WTI) crude futures rose $2.14, or 5.7%, to $39.55 a barrel, rising 10.7% on the week.

The US Labor Department reported a surprise fall in the jobless rate to 13.3% last month from 14.7% in April. Brent has risen 17% since May 29 to reach a three-month high, in a range more comfortable for producers like Russia. The contract has more than doubled since crashing as low as $15.98 a barrel on April 22. WTI is up 11%.

Both benchmarks were headed for a sixth week of gains, lifted by the output cuts and signs of improving fuel demand as countries ease lockdowns imposed to fight the new coronavirus outbreak.

Agencies