OPEC+ unlikely to decide on further cuts, but extension is possible
BAKU, Azerbaijan, May 18
By Leman Zeynalova – Trend:
OPEC+ is unlikely to decide on further cuts in its upcoming meeting to be held June 10, but instead it can extend the agreement, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris) told Trend.
“The next OPEC/non-OPEC (OPEC+) ministerial meeting will take place on 10 June. The 23 countries (13 OPEC countries and 10 non-OPEC countries - among OPEC countries Iran, Libya and Venezuela are exempted from production cuts) will study the developments on the world oil market, the evolution of oil demand, supply and stocks and will decide whether further supply adjustments are required. As the supply cuts decided in April by OPEC+ countries are huge it is unlikely that further cuts will be decided. One of the possible options could be for OPEC+ to extend the cuts decided for May-June for a longer period in order to consolidate and accelerate the rebalancing of the oil market,” he said.
As for the decision of Saudi Arabia, Kuwait and the United Arab Emirates (UAE) on extra cuts, Perrin noted that it constitutes significant contributions to the rebalancing of the world oil market, a process that will require some time to be completed.
“The first step in this process was taken in April with the announcement of production cuts by 20 OPEC and non-OPEC countries (OPEC+) from 1 May onwards (9.7 million barrels per day in May and June, 7.7 million b/d in the second half of 2020 and 5.8 million b/d from 1 January 2021 to 30 April 2022),” said the expert.
He pointed out that the second step is related to involuntary production cuts in some other producing countries outside OPEC+, especially the United States, which is the world's leading oil producer.
US crude production could fall by about 2 million b/d from its peak reached at the end of 2019, noted Perrin.
“The third step is linked to the future world economic recovery, probably in the second half of this year. This recovery will inevitably generate an increase of world oil consumption. The combination of this rise in demand and of these supply cuts will lead to higher oil prices in the coming months.
Saudi Arabia, Kuwait and the UAE are three OPEC member states and they are among the largest producers within this organization. Saudi Arabia is the largest one ahead of Iraq, the UAE and Kuwait in this order. The fact that such important oil countries are willing to reduce their output by a greater amount than decided at the April OPEC+ meetings is a new positive step for the oil market,” he said.
Perrin noted that Saudi Arabia's decision is particularly important: it had already decided to cut its oil output by 2.5 million b/d and it will add 1 million b/d to this target. Its production will thus fall from 11 million b/d in April to 7.5 million b/d.
“Oil prices remain low but they are significantly higher than some weeks ago. North Sea Brent price is now about $33 per barrel for July 2020 contracts on ICE Futures in London, half its level of 6 January this year. As far as West Texas Intermediate (WTI) is concerned its price is now about $30/b on the New York Mercantile Exchange (Nymex),” he concluded.
Follow the author on Twitter: @Lyaman_Zeyn