Oil ministers of the Organization of Petroleum Exporting Countries (OPEC) and other oil-producing countries headed by Russia met via video conference June 6 and reached an agreement to continue to cut 9.7 million b/d of oil through July, accounting for about 10percent of global output.
The original agreement reached by the OPEC+ group on Apr. 12 was to reduce the scale of OPEC+ production cuts to 7.7 million b/d from July 1 to the end of the year.
“OPEC+, once again, bit the bullet and extended its production cuts. The market could not have wished for a better way out of the price collapse, it’s true. This has been fast, faster than most, including us, anticipated,” commented Rystad Energy.
“The deal is a positive development and, unless a second Covid-19 wave hits the world, it will be the backbone of a quick recovery for the energy industry. That is due to the oil stocks decrease that we will see as a result of the production deficit. Stocks are now what keep prices at relatively low levels and when the quicker they fall, the faster we will see prices rise.”
“Also, when demand comes back to pre-COVID-19 levels, not all of the production will be there. Some shut wells will not come back and due to the lack of drilling amid natural production decline, supply will be modest. And prices will have one more reason to strengthen further.”
“The only potential Achilles heel, in what seemingly is an expected extension of current deep cuts through July, is the caveat of sub-compliant members requirement to compensate for lack of compliance to date in the coming months of July-September. Countries such as Iraq and Nigeria will struggle, we believe, to compensate fully, which puts increased pressure on the coherence of the alliance.”
“The fulcrum of the OPEC+ accord continues to be Saudi and Russia,” Simmons Energy said. ”Saudi’s production was reduced from around 12 million b/d at the beginning of April to 8.5 million b/d with an additional 1 million b/d of recalibration slated for June. Russian production, according to the International Energy Agency, was reduced from 10.5 million b/d to 8.5-9.0 million b/d. The evidence of broader GCC compliance, beyond reaffirmations of devotion to the grand bargain, isn’t compelling.”
“Nonetheless, global shut-ins, which have been prodigious well beyond OPEC+, and imploded well reinvestment have helped stabilize the global oil market.”
“The question from here is the durability of Saudi/Russian rational guardianship and the likely normalization path for global oil demand. The longer Saudi/Russia suppresses production, the more likely oil prices continue to normalize higher. And a continued swift improvement in oil prices will lead to a shallower reduction and quicker recovery in Lower 48 production.”
In a Wall Street Journal article, Kelcy Warren, chief executive officer of Energy Transfer Partners, expressed that “we’re seeing production coming back in pretty much all of the basins…It’s been a steady recovery since the first week of May.”