- As Russia, Saudi Arabia, Nigeria, Algeria, Canada, Others Fail To Meet To Agree On Extending Output Cuts
Oil prices dipped Thursday morning after hitting $40 per barrel on Wednesday as concerns mount over the prospect of holding a crucial OPEC+ meeting to agree on further oil output cuts among major producers.
The oil cuts have helped in stabilizing crude oil prices for Nigeria and other oil producers in recent weeks following the COVID-19 pandemic.
Nigeria’s monolithic economy is among the worst-hit economies in the OPEC bloc as the nation continues to tinker with its budget back-and-forth with unprecedented external borrowings just to reflect the reality occasioned by the vagaries of the disturbing oil price crisis.
OPEC and non-OPEC allies, a group of oil producers sometimes referred to as OPEC+, had been expected to hold a meeting on Thursday to announce further measures to stabilise prices.
While OPEC’s strong nation, Saudi Arabia and non-OPEC leader Russia were thought to have tentatively agreed on a one-month extension to production cuts, S&P Global Platts had on Wednesday reported that the date of a meeting to finalize the deal remains uncertain.
Analysts believe the upcoming OPEC+ meeting will “probably” enable oil nations on extending the commitment to reduce oil production by 9.7 million b/d from July to September.
In April, OPEC+ agreed to cut oil production by a record 9.7 million barrels per day (b/d), approximately 10% of global output. The move was designed to shore up prices as the coronavirus pandemic led to a record collapse in global oil demand.
The production cuts which began on May 1 were set to run through to the end of June. Under the current deal, the cuts will be reduced to 7.7 million b/d from July through to the end of 2020, and 5.8 million b/d from January 2021 through to April 2022.
The news that producers could meet this week had initially served as a morale booster to investors, but oil fell when reports revealed that a meeting planned for Thursday may not hold.
Algeria, which holds the rotating OPEC presidency, had proposed that OPEC+ hold a meeting on June 4 rather than next week. However, with a failure to meet this week, it means the meeting will go on to hold on June 9-10.
On Wednesday night, the Brent crude futures traded at $39.45 per barrel after falling by just 0.3 percent. Earlier in the session, it climbed above the $40 per barrel mark for the first time since March 6.
Meanwhile, the US West Texas Intermediate (WTI) crude futures stood at $36.75 per barrel, falling 0.11 percent after it had also risen to $37 level earlier in the session.
Oil prices had been showing better gains on the back of a potential extension to the pact between OPEC and its allies to cut crude supplies. Saudi Arabia and Russia have repeatedly agreed to extend current oil output cuts by a month in order to keep supplies short.
The alliance has also mulled a deal to extend the current level of OPEC+ cuts through to the end of 2020. This, however, has been tagged as significantly less likely than a two or three-month extension because of Russia.
Saudi Arabia and some other producers have expressed commitment to stringent cuts since the beginning of May which has assisted in the rally of prices, which began after US futures tumbled below zero for the fist time in history in April.
The demand picture is also beginning to improve as economic activities continue to pick up around the globe and many countries remove travel restrictions, which have grounded airliners and impeded shipping and road transport.
Despite the drop in gains, the crude oil market is shaping up better on the supply side as proof was provided by the American Petroleum Institute (API) which reported that crude stockpiles at the storage hub of Cushing, Oklahoma in the US fell by 2.2 million barrels per day last week.