Last Saturday, June 6, OPEC and OPEC+ countries came together via video and agreed to continue crude production limits through July. They had agreed previously to cut May and June supplies to 9.7 million barrels per day (bpd) per country. It would slowly ease to 7.7 million bpd between July and December.
The key areas agreed upon during the meeting:
- The April agreement was reconfirmed
- They considered compensation from countries who did not meet production cut quotas in May and June. Those countries agreed to meet quotas in July, August and September
- They agreed to continue the production adjustments for another month (July)
Saudi oil tankers are heading our way
“Demand is returning as big oil-consuming economies emerge from pandemic lockdown. But we are not out of the woods yet and challenges ahead remain,” Saudi Energy Minister Prince Abdulaziz bin Salman said. And he was right on both counts. Crude prices were moving upward until earlier this week when tankers filled with Saudi oil began arriving here in America. With lack of storage already a concern, this news made prices fall once again. There had been talk in Washington and elsewhere about refusing the imports. But the market will hopefully absorb the excess quickly and resume its upward path.
Global crude production cuts are helping
The decision to cut crude production and the agreement to continue it, have indeed proven helpful in getting the market moving in the right direction. Energy Minister Suhail al-Mazrouei of the United Arab Emirates tweeted about the agreement calling it “a courageous decision and a collective effort deserving praise from all participating producing countries.” And Saudi Oil Minister Abdulaziz bin Salman said, “We all have made sacrifices to make it where we are today.”
But let’s not forget that this “courageous decision” did not come about by itself. Only after U.S. legislation was introduced threatening to punish Riyadh with withdrawal of U.S. troops and military equipment did production cuts come about. And President Trump appealed personally to Saudi Arabia and Russia to cease their price war for the global good.
Not everyone is keeping their promises
But not all of the OPEC and OPEC+ countries adhered to the original crude production cut agreement. Iraq did not meet crude production cuts in May and June. So, Saudi Arabia and Russia came together to bring Iraq into compliance. Bob McNally, founder of consultant Rapidan Energy Group and a former White House official, said “Reunited in leadership of OPEC+ and grimly facing many more months, if not years, of oversupply, Russia and Saudi Arabia had little to lose and much to gain by imposing concrete measure to improve compliance by the laggards, especially Iraq.” It took more than a week of talks, but after making less than half of its assigned cuts last month, Iraq appears to have finally relented and agreed to uphold the agreement.
Angola, Kazakhstan and Nigeria also failed to meet OPEC crude production cut quotas, but all three have now agreed to bring their numbers back in line. Some OPEC+ countries were demanding that these slacking countries be made to make up for their lack of cuts by incurring even deeper cuts than the rest of the countries through the end of the year, but there is little word on whether this will ever come into play.