OPEC and Russia are poised to begin undoing the record oil supply cuts agreed earlier this year as they aim to boost production without undermining the recovery in oil prices.
The oil cartel and its allies will cut the cuts of 9.7 million barrels per day that took effect in May to 7.7 mb / d since August, OPEC delegates said on Wednesday.
It would be the first test of its ability to start returning the equivalent of nearly 10 percent of global oil production to the market, which was phased out this spring after Covid-19 blockades and travel bans crushed demand. of oil.
It confirms the expectation since the last OPEC meeting that oil producers would cut cuts to 7.7mb / d from August to the end of the year, before dropping to 5.8mb / d between January 2021 and April 2022.
Oil traders are keeping a close eye on the move, after the cuts helped crude recover from less than $ 20 a barrel in April to around $ 40 a barrel on Wednesday. Prices have also been underpinned by the gradual reopening of the world economy, which has pushed demand up and the oil market into a deficit.
But adding production again is a delicate act, at a time when new cases of coronavirus in the US and elsewhere are on the rise.
Donald Trump, US President, has defended the historic April supply deal as a way to protect the U.S. oil shale oil industry, which has been hit hard by the dramatic drop in prices. Brent crude, the international benchmark, was trading near $ 70 a barrel earlier this year.
Prince Abdulaziz bin Salman, Saudi Arabia’s oil minister, seemed aware of this risk when he opened the virtual OPEC meeting on Wednesday. “The additional supply resulting from the programmed relaxation of [the] The reduction in production will be consumed as demand continues on its recovery path, ”he said.
In his comments, the minister added that the increase in production could be less than expected, since countries that did not meet their supply cut targets in the first three months of the agreement retain part of the production as a way of compensation.
He said this could mean that the cuts would only be reduced to about 8 million barrels per day, if countries like Iraq and Nigeria did not release as many barrels on the market.
Prince Abdulaziz also indicated that while Saudi Arabia’s output would increase in August, it would only be to supply the domestic market, where energy demand for air conditioning increases in the summer months. The kingdom’s exports are expected to remain stable in August.
Saudi Arabia, which this year launched a price war to punish rival producers by flooding the market with its crude, has tried to emphasize that the move was an “unwanted departure” from its oil policy.
Russia’s energy minister Alexander Novak said on Wednesday that the oil nations were moving into the “second phase” of the supply agreement. “The market is very close to equilibrium,” he added.
Officials have met more frequently to track the oil market during the Covid-19 crisis, with key decisions taking place outside of traditional biannual meetings in Vienna.
