OPEC+ meets to review compliance with oil cuts

OPEC oil producers and allies such as Russia, a grouping dubbed OPEC+, will on Wednesday meet to review compliance with oil cuts meant to support oil prices amid the coronavirus pandemic.

OPEC+ is unlikely to change its output policy, which currently calls for reducing output by 7.7 million barrels per day (bpd) versus a record high 9.7 million bpd up until this month, according to OPEC+ sources. They said the meeting instead would focus on compliance by countries such as Iraq, Nigeria and Kazakhstan.

Compliance with the cuts was seen at 95 per cent to 97 per cent in July, according to OPEC+ sources and a draft report seen by Reuters on Monday. That is high by OPEC standards.

In July, top exporter Saudi Arabia was still pumping below its target and Iraq and Nigeria, while lagging behind the Gulf OPEC members on compliance, were pumping less than in previous months, according to a Reuter’s survey and other assessments. Saudi Arabia’s King Salman bin Abdulaziz spoke to Nigerian President Muhammadu Buhari on Wednesday and stressed the importance of compliance by all participants, Saudi state news agency SPA reported. Brent crude has been trading near a 5-month high above 45 dollars a barrel and has more than doubled since hitting a 21-year low below 16 dollars in April, helped in part by the OPEC+ deal. 

Global oil demand should recover to pre-pandemic levels as soon as the fourth quarter of 2020, the Saudi Energy minister said while urging OPEC members and allies to boost compliance with oil output cuts aimed at supporting prices. The comments came as OPEC oil producers and allies such as Russia, a grouping dubbed OPEC+, began a meeting on Wednesday to review the compliance levels. “Based on the average projections of various institutions, including OPEC, EIA and the IEA, it is estimated that the world will reach about 97% of pre-pandemic oil demand during the fourth quarter – which is a big recovery from the huge falls in April and May,” said Prince Abdulaziz bin Salman.

A draft OPEC+ statement, seen by Reuters, said a second prolonged wave of the pandemic was a major risk for the oil market recovery. OPEC+ sources have said the group was unlikely to change on Wednesday its output policy, which currently calls for reducing output by 7.7 million barrels per day (bpd) versus a record high 9.7 million bpd up until this month. Other sources said the virtual meeting, would look in particular at compliance by countries such as Iraq, Nigeria, Angola and Kazakhstan. They have made a smaller share of their reduction than members such as Saudi Arabia and are now due to compensate for higher output in May-June by producing less in July-September. “It is very important to maintain full conformity,” said Russian Energy Minister Alexander Novak, who had tested positive for coronavirus and joined the virtual meeting from home.

“We should endeavour to put this temporary compensation regime behind us, by clearing all the past over-production by end of September,” said Prince Abdulaziz. The draft statement said all compensation plans shall be submitted before the end of August. Overall compliance with the deal reached 95-97% in July, the draft report said – a high figure by OPEC standards. In July, Saudi Arabia was pumping below its target and Iraq and Nigeria, while lagging the Gulf OPEC members on compliance, were pumping less than in previous months. Brent crude is trading near a 5-month high above $45 a barrel and has more than doubled since hitting a 21-year low below $16 in April, helped by the OPEC+ deal.

Reuters