Oil producing countries are looking to extend production cuts

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The agreement reached on April 12 stipulates that the historic production cut be reduced to 7.7 million barrels per day from July to December, then to 5.8 million barrels per day from January 2021 to April 2022.

  • Red Cross medics check the heat of participants at an OPEC meeting in Vienna (Archive / AP)

The Organization of Petroleum Exporting Countries (OPEC) and its allies will hold a video conference today, Saturday, with the aim of discussing the continuation of their agreement on production cuts concluded to reduce the consequences of the emerging corona virus crisis.

The 13 members of the Organization of Petroleum Exporting Countries led by Saudi Arabia were scheduled to meet with representatives of the ten partner countries, including Russia and all of them members of what has become known as the “OPEC +” alliance, on the ninth and tenth of June.

A source close to OPEC said that the meeting, which opens at 12:00 GMT, was rounded off to Saturday, based on a proposal submitted by Algerian Energy Minister Mohamed Arqab, whose country holds the rotating presidency of OPEC.

The videoconference will take place due to restrictions imposed to cope with the Covid-19 epidemic.

In order to tackle the collapse in global demand for black gold, OPEC + nations have pledged to cut production from May 1 to late June by 9.7 million barrels per day, or about 10% of global supply before the crisis.

The agreement reached on April 12 stipulates that the historic production cut be reduced to 7.7 million barrels per day from July to December, then to 5.8 million barrels per day from January 2021 to April 2022.

However, the oil cartel may decide to keep the current cut (9.7 million barrels per day) until after June 30.

“It appears now that it is very likely that (OPEC +) will extend the current production cut in May and June, for an additional month,” said Bernard Tonhuijen, an analyst at the Restad Energy Institute.

Some analysts and market observers expect the extension to be longer, to the end of the summer if not until the end of the year, because the easing of the isolation measures that were applied in many countries of the world did not allow the volume of consumption to be restored to its pre-crisis level, which was less than the supply originally .

“We agreed that it should be extended for at least a month. After that we will assess the situation,” a source close to the negotiations told Russia’s Tass news agency on Wednesday.

As often happens, tension is expected to prevail in the negotiations between Russia and Saudi Arabia, the two main powers in the agreement that fought a short price war after the failure of previous negotiations in March.

Ole S. felt. Hansen, an analyst at Saxopank, said in a note that compliance with pledges made by countries could be the main obstacle.

He said, “The problem is knowing what to do with countries that do not respect the cuts they promised, like Iraq and Nigeria, who are known in OPEC for lack of commitment, which for years and until now have not respected the previous agreements.”

He added that this issue is a thorny subject that “complicates the efforts” of the whole group.

The data firm “Kepler” stated that “OPEC +” reduced its production by about 8.6 million barrels per day in May, or 11% less than the planned reduction.

Despite these uncertainties, OPEC’s policy proved to be effective, since prices rose to about forty dollars for light oil at the beginning of June, as well as for a barrel after falling to unprecedented levels around April 20.

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