OPEC+ has agreed to extend production curtailments through July. Oil prices have risen sharply in response to the news, with crude trading just below $40 – the highest level in over three months. OPEC says the cuts would cure an over-supplied market in July.
The deal is expected to be signed sometime this weekend. This comes after negotiations with Iraq brought talks to an impasse, per Reuters.
According to OPEC delegates, the curtailments will be revisited each month. Members are expected to watch the return of demand, as lockdowns continue easing across the globe.
The most recent agreement, in April, called for a curtailment of 9.7 MMBbl/d of production. In addition to the mandated cuts, OPEC members Saudi Arabia, Kuwait, and the UAE pledged an additional 1.18 MMBbl/d of cuts, according to Bloomberg.
Oil has rallied by 15% since May 28, 2020, settling at $39.55 on June 5, 2020, in anticipation of the meeting. The agreement reached in April has helped provide a floor for crude prices.
The cartel’s production dropped by 5.91 MMBbl/d in May to bring total production to 24.77 MMBbl/d, per Reuters. This agreement gives the market an additional month to reassess the damage to demand from COVID-19 and the expected recovery.
According to The Wall Street Journal, OPEC+ compliance for May was 89%, falling 1.1 MMBbl/d short of the target set during the April meeting. Iraq, Kazakhstan, Angola, and Nigeria failed to fully meet their share of the obligation to reduce production under the OPEC+ oil cut pact
OPEC produced as much as 33 MMBbl/d in 2018, according to Bloomberg data. If the cuts reduce OPEC+ output to 23.3 MMBBbl/d, that is roughly 10 MMBbl/d of spare capacity.
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