Business

OPEC, Russia to extend record oil cuts to end of July amid pandemic

OPEC, Russia and allies were set on Saturday to extend record oil production cuts until the end of July after crude prices doubled in the past two months on the back of their efforts to withdraw almost 10% of global supplies from the market.

Crude prices double in past 2 months after almost 10% of global supplies withdrawn

Workers look at a drilling rig of the Rosneft-owned Prirazlomnoye oil field outside Nefteyugansk, Russia, in August 2016. (Sergei Karpukhin/Reuters)

OPEC, Russia and allies agreed on Saturday to extend record oil production cuts until the end of July, prolonging a deal that has helped crude prices double in the past two months by withdrawing almost 10 per cent of global supplies from the market.

The group, known as OPEC+, also demanded countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.

OPEC+ had initially agreed in April that it would cut supply by 9.7 million barrels per day (bpd) during May-June to prop up prices that collapsed due to the coronavirus crisis. Those cuts were due to taper 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," Saudi Energy Minister Prince Abdulaziz bin Salman told the video conference of OPEC+ ministers.

Benchmark Brent crude climbed to a three-month high on Friday above $42 a barrel, after diving below $20 in April. Prices still remain a third lower than at the end of 2019.

WATCH | Canadian oil producers don't see relief after OPEC deal to cut output:

Richard Masson, chair of World Petroleum Council-Canada, says Ottawa needs to move soon if it plans to help producers, as companies face 'really tough decisions.' 0:55

"Prices can be expected to be strong from Monday, keeping their $40 US plus levels," said Bjornar Tonhaugen from Rystad Energy.

Saudi Arabia, OPEC's de facto leader, and Russia have to perform a balancing act of pushing up oil prices to meet their budget needs while not driving them much above $50 US a barrel to avoid encouraging a resurgence of rival U.S. shale production.

1 billion barrels of excess oil inventories

The April deal was agreed under pressure from U.S. President Donald Trump, who wants to avoid U.S. oil industry bankruptcies.

Trump, who previously threatened to pull U.S. troops out of Saudi Arabia if Riyadh did not act, spoke to the Russian and Saudi leaders before Saturday's talks, saying he was happy with the price recovery.

While oil prices have partially recovered, they are still well below the costs of most U.S. shale producers. Shutdowns, layoffs and cost cutting continue across the United States.

As global lockdown restrictions to halt the spread of the coronavirus are being eased, oil demand is expected to exceed supply sometime in July but OPEC has yet to clear 1 billion barrels of excess oil inventories accumulated since March.

Tonhaugen said Saturday's decisions would help OPEC reduce inventories at a rate of 3 million to 4 million bpd over July-August.

Workers are seen in Aramco's oil separator at processing facility in Abqaiq, Saudi Arabia, in September 2019. (Amr Nabil/The Associated Press)

"The quicker stocks fall, the higher prices will get. And that is crucial for many OPEC+ economies, whose fiscal budgets count on oil sales," he said.

Nigeria's petroleum ministry said Abuja backed the idea of compensating for its excessive output in May and June.

Iraq, with one of the worst compliance rates in May, agreed to extra cuts although it was not clear how Baghdad would reach agreement with oil majors on curbing Iraqi output.

Workers are seen in the Nihran Bin Omar field north of Basra, Iraq, in January 2017. (Nabil al-Jurani/The Associated Press)

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.

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 on Nov. 30-Dec. 1.

Add some “good” to your morning and evening.

A variety of newsletters you'll love, delivered straight to you.

Sign up now

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.

now