Opec+ Extra Cuts Will End In June: Saudi Oil Minister

(Argus, 8.Jun.2020) — Mideast Gulf countries that pledged deeper crude cuts beyond their Opec+ commitments this month do not plan to extend these into July, Saudi oil minister Prince Abdulaziz bin Salman said today.

Opec+ agreed on 6 June to extend the first phase of its historic two-year production restraint deal to the end July for all participants except Mexico. The group had agreed in April to cut May-June production by 9.7mn b/d, largely from an October 2018 baseline.

Under the deal, Saudi Arabia agreed to a ceiling of 8.49mn b/d in May-June and 8.99mn b/d in July-December; Kuwait committed to cap its production at 2.17mn b/d in May and June and at 2.3mn b/d in the second half of the year; and the UAE agreed to a limit of 2.45mn b/d in May and June and 2.59mn b/d for the rest of the year. These three pledged additional cuts in June, which would cap Saudi production at 7.49mn b/d, Kuwaiti output at or below 2.09mn b/d and UAE production around 2.35mn b/d.

The deeper voluntary cuts were for one month only and will not be extended into July, Prince Abdulaziz said today. He said that they have served their purpose and improved the atmosphere among the group to encourage countries to act in a more committed way.

The latest Opec+ deal hinges on countries that produce above their quotas in May and June making up for the non-compliance over July-September. This means cuts could exceed the 9.6mn b/d for July and the 7.7mn b/d cuts planned for August and September, Prince Abdulaziz said. He said that compliance will be self-enforced, although the group’s Joint Ministerial Monitoring Committee (JMMC) — which tracks the compliance — will meet every month until the end of the year to track progress on conformity as well as market conditions. The JMMC will next assemble on 18 June.

The Opec+ agreement comes as Libya — which is exempt from Opec+ output restraints — resumes production at its 300,000 b/d El Sharara field after a five-month shutdown. It is unclear if El Feel was also able to resume production. If successful, a complete restart at El Sharara and El Feel could bring online nearly 400,000 b/d of production.

Prince Abdulaziz said the Opec+ group will consider this but that it would be unproductive to engage in discussion so soon. He said that the group can accommodate an additional 300,000 b/d.

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— By Rowena Edwards and Nader Itayim

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