Opec+ edges closer to compromise to extend deepest ever output cuts
June 02 2020 11:24 PM
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An oil tanker sits anchored off the Fos-Lavera oil hub near Marseille, France (file). Oil prices have rallied from historic lows since Opec and its partners put an end to a vicious price war by implementing cuts on a record scale.

Bloomberg/Moscow/London

Opec and its allies edged closer to a consensus on extending production cuts to prop up the oil market, even as wrangling continued for a third day about whether to bring forward their next meeting.
Russia and several other Opec+ nations favour extending the group’s current production cuts by one month, according to people familiar with the situation. It’s unclear if that’s enough for leading Opec member Saudi Arabia, though the proposal is within the range of the kingdom’s own call for a one to three-month elongation.
Oil prices have rallied from historic lows since the Organization of Petroleum Exporting Countries and partners put an end to a vicious price war by implementing cuts on a record scale. With a tentative recovery in fuel demand as the world emerges from the coronavirus lockdown, the oil alliance must now decide how long to maintain tight limits on output.
Fears of a second wave of infections make predictions of a recovery perilous. And at about $40 a barrel, prices are still below what most Opec+ members need to cover government spending.
As recently as last week, Russia’s stance was that it didn’t want to extend the cuts and instead favoured sticking to the original agreement to ease them from July. But a person familiar with its position said on Tuesday it was advisable to find a compromise. In March, Moscow resisted a proposal to deepen production cuts as coronavirus spread; talks broke down and Saudi Arabia launched a price war that crippled producers and left gaping holes in countries’ budgets.
It’s not unusual for Russia and Saudi Arabia to hold different positions before Opec+ talks, and on most occasions the two producers have eventually found a compromise.
“We do not believe there will be repeat of the March meltdown,” Helima Croft, head of global commodity strategy at RBC, said in a note. “We think they will seek to split the difference by agreeing to a one to three-month extension.”
With Brent crude rallying toward $40 a barrel, Saudi Arabia and Russia face another challenge as they weigh up how to manage the recovery: US oil shale companies are tentatively re-starting some of their wells.
Parsley Energy Inc, a medium-size shale producer in Permian basin in Texas, on Thursday said it planned to “restore the vast majority of curtailments in early June” amounting to 26,000 barrels a day. And in the Bakken basin, producers have already increased output by about 35,000 barrels a day from the low point of mid-May, according to North Dakota official data.
On Tuesday, Opec members were still wrangling over when to hold their next meeting. A proposal to bring it forward a few days to June 4 was floated on Saturday, but agreement on when to hold the virtual gathering was still elusive.
Another sticking point in discussions is the issue of compliance – whether members are implementing the cuts they have already promised, according to delegates. Saudi Arabia is insisting that countries should report production figures for May, the first month of the Opec+ coalition’s latest agreement, according to a delegate who declined to be identified.
Russia, which was often a laggard in the past but has stuck to its pledges this time, is also pushing for any extension to be conditional on compliance. Iraq and Nigeria, who have repeatedly flouted Opec commitments during the past three years, made less than half of their agreed cutbacks last month, a Bloomberg survey showed on Monday.
Iraq’s finance minister and acting oil minister, Ali Allawi, hit back on Twitter, saying the country is committed. “Despite Iraq’s severe financial constraints, we’re addressing technical issues that will allow us to further reduce oil output,” he said.



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