OPEC members, led by Saudi Arabia, and other key oil producers on Saturday agreed to extend historic output cuts through next month, as oil prices tentatively recover and coronavirus lockdowns ease.
The 13-member cartel and its allies, notably Russia, decided to extend by a month the deep cuts for last month and this month that had been agreed to in April to boost prices, OPEC said in a statement.
However, Mexico, which had already made clear ahead of the talks that it “could not adjust ... production further,” announced that it would not be complying.
Oil prices have plummeted as a result of falling demand as countries around the world impose strict lockdowns to stop the spread of the novel 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 this month.
The cuts were then to be gradually eased from next month, to 7.7 million bpd until December.
Algerian Minister of Energy Mohamed Arkab, who currently holds OPEC’s rotating presidency, said that the agreed cut for next month was 9.6 million bpd.
Oil ministers from key producers are to meet monthly to assess the agreement, he added.
US Secretary of Energy 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 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,” said Bjornar Tonhaugen, a senior vice president and head of oil market research at Oslo-based Rystad Energy, referring to a feared fresh wave of 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 in Massachusetts.
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 million bpd last month, less than planned, with Iraq and Nigeria seen as the most resistant.
OPEC said all meeting participants agreed that countries that failed to comply fully so far were willing to make up for it over the next three months.
Nevertheless, it was precisely that earlier failure that led Mexico on Saturday to refuse to extend its cuts.
“There are other countries that extended the cuts to July. We told them no, that we are maintaining the agreement signed in April. There is no problem,” Mexican Minister of Energy Rocio Nahle told reporters during a visit to a petrochemical plant in Veracruz state.
She said Mexico “fully respected” the original agreement, under which it agreed to cut production by 100,000 barrels a day, but other countries “did not respect it,” without specifying which ones.
Despite the difficulties, the output cuts have helped support oil prices, which rose to about US$40 per barrel at the start of this month for both the US benchmark, West Texas Intermediate, and Europe’s Brent North Sea contracts.
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