OPEC members, led by Saudi Arabia, and other key oil producers agreed Saturday to extend historic output cuts through July, as oil prices tentatively recover and coronavirus lockdowns ease.

The 13-member cartel and its allies, notably Russia, decided to extend by a month deep May and June cuts agreed in April to boost prices, the Organization of the Petroleum Exporting Countries said in a statement.

Prices had plummeted owing to falling demand as countries around the world imposed strict lockdowns to stop the spread of the new coronavirus.

“All participating countries… agreed the option of extending the first phase of the production adjustments pertaining in May and June by one further month,” the OPEC statement said.

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 cuts were then to be gradually eased from July, to 7.7 million bpd until December.

Algerian Oil Minister Mohamed Arkab, who currently holds OPEC’s rotating presidency, told AFP that the agreed cut for July was 9.6 mbpd, just slightly below the 9.7 mbpd for May and June.

Oil ministers from key producers will meet monthly to assess the agreement, he added.

‘Important agreement’

US Energy Secretary Dan Brouillette welcomed the extension of cuts.

“I applaud OPEC-plus for reaching an important agreement today which comes at a pivotal time as oil demand continues to recover and economies reopen around the world,” he said in a tweet.

Analysts had expected the May-June cuts to be extended by at least another month, if not longer.

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

“Today’s deal is a positive development and, unless a second COVID-19 wave hits the world, it will be the backbone of a quick recovery for the energy industry,” Bjornar Tonhaugen of Rystad Energy said, referring to a feared fresh wave of new coronavirus infections.

“The 9.7 million bpd production cuts were already working, extending them an extra month will tighten (the) market more quickly,” Ann-Louise Hittle of Wood Mackenzie said.

Respecting quotas

A bone of contention ahead of the meeting had been the willingness of each country to abide by the agreed production quotas.

According to data intelligence company Kpler, OPEC+ reduced output by around 8.6 mbpd in May, less than planned, with Iraq and Nigeria seen as the most resistant.

OPEC said all meeting participants agreed Saturday that countries that failed to comply fully so far were willing 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 $40 per barrel at the start of June for both the US benchmark, West Texas Intermediate (WTI), and Europe’s Brent North Sea contracts.

Both had slumped to historic lows in April, with Brent falling as low as $15 and WTI briefly entering negative territory.

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

The next meeting of OPEC and its allies has been scheduled for December 1 in Vienna, where the organisation is based.

Reporting and photos: AFP