OPEC and its allies have moved closer to a consensus on extending production cuts to support the oil market, although quarrels continued for a third day over whether to advance their next meeting.
Russia and several other OPEC + countries are in favor of extending the group’s current production cuts by one month, according to people close to the situation. It is unclear if this is enough for Saudi Arabia, a prominent member of OPEC, although the proposal is within the kingdom’s call for an extension of one to three months.
Oil prices have rebounded from historic lows since the Organization of the Petroleum Exporting Countries and its partners ended a vicious price war with cuts on a record scale. With a timid recovery in fuel demand as the world emerges from the coronavirus shutdown, the cartel must now decide how long to maintain strict production limits.
Fears of a second wave of infections make predictions of a recovery dangerous. And at around $ 40 a barrel, prices are still lower than what most OPEC + members need to cover public spending.
As recently as last week, Russia’s position was that it did not want to extend the cuts and instead preferred to stick to the initial agreement to make them more flexible from July. But a person familiar with his position said on Tuesday that it was advisable to find a compromise. In March, Moscow resisted a Saudi-led proposal to intensify production cuts as the coronavirus spread; talks failed and the kingdom launched a price war that paralyzed producers and left gaping holes in countries’ budgets.
Read more: Budget Boost gives Putin an incentive to stick with OPEC + cuts
It is not uncommon for Russia and Saudi Arabia to occupy different positions before the OPEC + talks, and in most cases the two producers have finally found a compromise.
“We don’t think there will be a repeat of the March collapse,” said Helima Croft, head of global commodity strategy at RBC, in a note. “We think they will try to split the difference by agreeing to a one to three month extension.”
Brent crude exceeds $ 40 a barrel on Wednesday for the first time since early March, Saudi Arabia and Russia face another challenge as they assess how to handle the recovery: US oil shale companies temporarily reboot some from their wells.
Parsley Energy Inc., a medium-sized shale producer in the Permian Basin in Texas, said Thursday it plans to “restore the vast majority of the reductions in early June” – 26,000 barrels per day. And in the Bakken Basin, producers have already increased production by about 35,000 barrels a day since the low point in mid-May, according to official data from North Dakota.
OPEC members were still arguing over when to hold their next meeting on Tuesday. A proposal to move it a few days to June 4 was launched on Saturday, but agreement on when to hold the virtual rally was still difficult to reach.
Another sticking point in the discussions is the issue of compliance – whether members are implementing the reductions they have already promised, delegates said. Saudi Arabia, the group’s largest member, insists that countries report production figures for May, the first month of the last OPEC + coalition agreement, according to a delegate who asked not to be identified.
Russia, which has often lagged behind in the past but which has kept its commitments this time, is also pressing for any extension to be made conditional on respect. Iraq and Nigeria, which have repeatedly flouted OPEC commitments in the past three years, made less than half of the cuts agreed last month, aThe Bloomberg survey showed on Monday.
Iraqi Finance Minister and Acting Oil Minister Ali Allaoui retaliated Twitter, saying that the country is committed. “Despite Iraq’s severe financial constraints, we are tackling technical problems that will allow us to further reduce oil production,” he said.
His Nigerian counterpart Timipre Sylva posted a similar message onInstagram later Tuesday. He admitted that the West African country had only made half of its promised cuts last month, but promised that crude oil production would fall within its quota by the end of June.
The initial agreement – reached in April when the virus ravaged demand for oil – called for production cuts of 9.7 million barrels per day, or about 10% of world supply, for May and June. Saudi Arabia, Kuwait and the United Arab Emirates then made further voluntary reductions of about 1.2 million barrels per day in June, bringing the total of OPEC + restrictions to nearly 11 million barrels a day.
Under the current OPEC + agreement, supply reductions are expected to be reduced to around 7.7 million barrels per day in July, followed by a gradual reduction in early 2021.
– With the help of Salma El Wardany and Grant Smith
((Updates the price of Brent in the 8th paragraph.)