Some sources from OPEC+ have disclosed that the organisation is moving closer to a compromise on extending current 9.7 million BDP oil output cuts and are discussing a proposal to roll oversupply curbs for one to two months.
“It is the proposal now, but it is yet to be finalised,” one OPEC+ source said of the 1-2-month extension.
“It’s for a month or two, not for half a year,” one Russian oil source said, on the rollover of the existing cuts.
Another OPEC+ source said there was support for Russia’s proposal for an extension of one month, but “we still do not have consensus over it”.
“Opec+ could meet on June 4 to decide on a market management policy that might extend the current production cut pact by up to two months,” a third source from OPEC+ said.
The OPEC+ group is likely to hold an online meeting on June 4 to discuss output policy, after Algeria, which currently holds the presidency of the Organization of the Petroleum Exporting Countries, OPEC, proposed a meeting planned for June 9-10 be brought forward.
Reduced production from OPEC+, combined with a record decline in output from non-members such as the United States and Canada, have helped to lift oil prices towards $35 per barrel, but they remain at only half the level of the start of the year.
Background
OPEC+ in April 2020 decided to cut output by a record 9.7 million barrels per day, BPD, or about 10% of global output, in order to help the crippling industry which was faced by a demand drop linked to lockdown measures which were aimed at fighting the spread of the coronavirus pandemic and the oil price war between OPEC and non OPEC producers.
Market implications
Inventory levels are on the increase pertaining to a surge in US crude oil imports, particularly from Saudi Arabia. This news was serving to cap the recent rally in prompt prices. “But it is worth noting the surge in imports is likely a temporary phenomenon as the shipments were sent before OPEC+ came to their historic production cut deal,” analysts at TD Securities explained.
“With that said, and as demand continues to normalize, we continue to expect crude fundamentals will remain on a tighter path throughout the summer. This will see inventory builds make way for draws, and support our long WTI Dec20-Dec21 spread,” they added.
