Ahead of the June 4 meeting of the Organization of the Petroleum Exporting Countries, OPEC+, there are indications that the alliance of oil-producing nations led by the US, Saudi Arabia and Russia is close to a deal that would extend collective production cuts through September 1 as the world emerges from an oil price crisis occasioned by COVID-19.
This development is expected to further rally the price of crude as Brent is nearing the $40 per barrel, a remarkable comeback after crashing below $20 per barrel a little more than a month ago.
Recall that latest news from a Reuters survey data had indicated that OPEC member countries failed to fulfill their commitments to the 9.7 million barrels daily production cut concerning May output, and this has allegedly triggered a fresh disagreement between Saudi Arabia and Russia as to whether to once again extend the production cut beyond the initially agreed timelines or terminate the deal.
The trending findings based on a scientific survey conducted by Reuters revealed that OPEC member countries only complied with agreed production cut by 74% in May.
Recall also that following escalating oil price crisis occasioned by COVID-19 shocks as well as plummeting oil prices globally caused by a glut in international storage capabilities, the Organization of Oil Producing Countries(OPEC) and non-OPEC member countries including the United States, Russia, and Mexico had agreed to an output cut of 9.7 million barrels of oil per day.
This deal which is fully applicable to OPEC member countries was meant to normalize the state of global oil supplies and price dynamics. However, the latest news from the Reuters survey data indicated that OPEC member countries failed to fulfill their commitments to the 9.7 million barrels daily production cut thereby triggering fresh concerns over the fate of the deal.
The data obtained from the survey showed that Saudi Arabia, and other 13-members of OPEC including Nigeria and Iraq did not adhere to the production cut agreement protocols aimed at taking “9.7 million barrels of oil production per day out of the oversupplied market.”
There were fears that due to this, the agreement may b terminated which will lead to another round of oversupply in the market which will in turn affect the price of crude.
Indications have now emerged that ahead of the June 4 meeting, the United States, Saudi Arabia and Russia are close to inking another two-month extension of the current oil production cuts, thereby extending the agreement through to September 1.
Saudi Arabia had initially pushed for an extension through the end of the year while Russia had favored easing the cuts in July. Now, a two-month extension has been seen as a middle-ground compromise.
The price of crude has been on a steady increase with Brent Crude closing in on the $40 a barrel threshold, rising 2.37 percent to $39.20.
Commenting on the possible outcome of the OPEC+ meeting, Citi’s head of commodities research Edward Morse told Reuters:
“Most likely, OPEC+ could extend current cuts until Sept. 1, with a meeting set before then to decide on the next steps,” he said.