In recent days, delegates from Opec and Russia had discussed extending the 9.7 million barrels per day of cuts from one to three to support the oil market, but Moscow wanted to start easing the brakes more early.
The deal was made on Saturday before the official video meeting of the oil ministers, according to an OPEC delegate and those informed of the plan, the cuts to be extended and then reviewed monthly until December.
Countries are committed to increasing compliance, a major concern for Saudi Arabia.
The meeting of Opec members ended in a few hours on Saturday, and the agreement is now due to be signed by non-members such as Russia later the same day.
The so-called Opec + group agreed in April to reduce by around 10% of the world supply in May and June to support the crude market, and initially had to reduce the declines in July to 7.7 Mb / d, about 8% for the rest. of the year as demand picks up.
But the nascent recovery in oil prices, which fell from less than $ 20 a barrel in April to almost $ 40 a barrel today, has encouraged the group to maintain supply restrictions. The move is expected to help tighten a market that has faced a huge drop in consumption as government restrictions and travel bans spread throughout much of the world in March and April.
An additional 1m b / d cut by Saudi Arabia in addition to the group-wide cuts of 9.7m b / d will end this month.
The oil-producing economies have seen their revenue hit hard, but are reluctant to let prices rise too high for fear of a resumption of US shale production which could undermine collective action.
The decision to maintain the cuts will always be a boost for Donald Trump, who lobbied Saudi Arabia and Russia to reach an agreement as the higher-cost US shale industry was hammered by the downside. prices.
On Friday, Trump thanked Russia and Saudi Arabia for helping to save the US energy industry, which he said was in danger of becoming “worthless”.
Oil production in the United States is expected to decline further this year, but most of the wells that had been shutdown after the US benchmark prices collapsed briefly in negative territory in April are now starting to return, although prices remain around half of their January level.
Global demand for oil fell by a third in April, but began to recover as blockages eased in North America and Europe, while China – the world’s second largest consumer of oil after the United States United States – saw domestic demand return almost before the crisis. levels.
Saudi Arabia, OPEC’s largest producer, is pushing countries that have not fully implemented the mandatory reductions to comply with the agreement in the coming months, including Nigeria and Iraq, members of Opec.
Nigerian Minister of State for Petroleum Resources Timipre Sylva said on Twitter ahead of Saturday’s meeting that the country would make up for the lower than expected cut in May and June later in the year.
“Nigeria. . . supports the concept of compensation for countries that are unable to comply fully, “said Sylva.
Bjornar Tonhaugen of Rystad Energy said the extension would help reduce excess oil stocks by 3 million bpd in July than if the group had started cutting cuts, although that is still only about 10% of the barrel stock of nearly a billion dollars. seen in the first five months of the year. Pre-pandemic demand was close to 100 m b / d.
“The market has mainly evaluated this month-long expansion scenario in, we think, so the increase in the package price is fairly limited if Opec + does not have additional cards up its sleeve,” said Mr. Tonhaugen.
“For example, deepening the cuts over an even longer period to accelerate the return to a more” normal “oil price level of $ 50 to $ 60.”
Saudi Arabia and the other Gulf States will however resume part of their production, after having promised an additional 1.2 million b / d of cuts for the month of June in order to accelerate the rebalancing. These reductions, which were added to the basic Opec + agreement, will be canceled from July rather than extended.