OPEC, allies meet to discuss output cuts

The 13-member OPEC and other oil producing nations such as Russia and Mexico are discussing a deal agreed in April to boost prices AFP/ALEXANDER KLEIN

The 13-member cartel and other oil producing nations such as Russia and Mexico are discussing an agreement reached in April to boost prices, which have plummeted over falling demand as countries around the world have imposed strict lockdowns to stop the spread of the new coronavirus.

The meeting, originally scheduled for next week, was brought forward to Saturday at the suggestion of Algerian Oil Minister Mohamed Arkab, who currently holds the rotating presidency of the Organization of Petroleum Exporting Countries.

Under the terms of the April agreement, OPEC and the so-called OPEC+ pledged to cut output by 9.7 million barrels per day (bpd) from May 1 until the end of June.

The reductions would then be gradually relaxed from July, with 7.7 million bpd taken off the market from July to December.

But at Saturday's talks, crude producers were expected to discuss extending the 9.7 million bpd beyond June, even if agreement might prove difficult to reach.

The April deal was signed after days of wrangling between major players, whose revenues have been ravaged by the collapsing oil market this year.

"It seems very likely the May-June cuts will be extended by another month," said Bjornar Tonhaugen, analyst at Rystad Energy.

Some market observers are expecting the cuts to be extended still further, possibly until the end of the summer or even until the end of the year.

Although more countries around the world are gradually moving out of lockdown, crude consumption has not returned to pre-confinement levels, which had already been comparatively low.

RESPECTING QUOTAS

As in previous negotiations, discussions could prove particularly tense between Russia and Saudi Arabia, the deal's two heavyweights who became involved in a short but bitter price war when previous talks broke down in March.

Mexico, which held up the April deal before it was eventually finalised, has also already ruled out any further drop in oil production with its president, Andres Manuel Lopez Obrador, saying on Friday his country "could not adjust our production further".

Another major bone of contention could be the willingness of each country to abide by the agreed production quotas, suggested RBC analyst Al Stanton.

According to data intelligence company Kpler, OPEC+ reduced output by around 8.6 million bpd in May, a smaller cut than planned, with Iraq and Nigeria seen as the main culprits.

Nigeria's Ministry of Petroleum Resources said in a tweet Saturday that it backed discussions to allow countries which failed to conform fully to the agreed cuts in May and June to make up for it in July, August and September

Despite the difficulties, the output cuts have helped support oil prices, which rose to around US$40 per barrel at the start of June for both the US benchmark, West Texas Intermediate (WTI), and Europe's Brent North Sea contracts.

Around Apr 20, both had slumped to historic lows, with Brent falling as low as US$15 and WTI even entering negative territory.