OPEC+ countries have agreed to extend the current level of oil supply cuts for another six weeks. Last week, the 23 country alliance decided to continue cutting 9.7 million barrels of oil per day through the end of July. This move will take roughly 10% of oil products off the market. In April, the group agreed to slow production by 9.7 million barrels per day through the end of June, and then ease cuts to 7.7 million barrels per day through the end of 2020.
During the conference call, there were concerns about potential noncompliance with the agreement, but now it looks like more countries could be falling in line. ‘We have no room whatsoever for lack of conformity,’ Saudi Energy Minister Prince Abdulaziz bin Salman said in a virtual press conference. ‘Those that failed to conform to the OPEC+ deal in May and June should compensate with extra cuts from July through to September.’
As previously mentioned, not all OPEC+ countries have a history complying with agreed production cuts. Iraq is one such country. The country is OPEC’s second largest producer, and typically one of the less compliant ones. However, on Tuesday, Iraq’s State Oil Marketing Organization asked some buyers if they could cancel delivery of previously contracted supplies in June and July. According to an OPEC press release, in a phone call with Prince Abdulaziz bin Salman, Iraq’s Oil Minister ‘highlighted Iraq’s support of these efforts and its commitment to the voluntary oil production adjustments of June and July 2020, as well as the voluntary adjustments for the period following the end of July, despite the economic and financial challenges.’
Noncompliance nearly derailed last week’s meeting. In addition to Iraq, Nigeria and Russia have a history of failing to adhere to promised cuts. According to some estimates, Nigeria, Iraq, Angola, and Kazakhstan will have to reduce supply by 1.18 million barrels per day to stay within the agreed upon parameters.
The International Energy Agency estimates that shutdowns sapped nearly 25% of global oil demand in April, causing prices to plummet.