OPEC and allies agree to extension of record supply cuts to July

The global oil cartel known as OPEC+ on Saturday agreed to extend record oil production cuts until the end of July, in a move which should further support the recovery of oil prices after the COVID-19 crash.

The group, comprised of OPEC members, Russia and other key oil producing nations, had initially agreed to cut supply by 9.7 million barrels per day (bpd) during May and June after a total collapse in demand due to worldwide lockdowns had reduced the price of Brent crude to below $20 a barrel in April.

Prices have recovered since the decision to make the biggest oil supply cuts in history, with Brent crude climbing to a three-month high on Friday above $42 a barrel, although the price remains a third lower than at the end of 2019.

“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,” said Saudi Energy Minister Prince Abdulaziz bin Salman in a video conference of OPEC+ ministers.

As global lockdowns ease, oil demand is expected to exceed supply sometime in July although OPEC has yet to clear 1 billion barrels of excess oil inventories accumulated since March.

Rystad Energy’s Bjornar Tonhaugen said OPEC’s latest agreement will reduce inventories at a rate of 3-4 million bpd in July to August. “The quicker stocks fall, the higher prices will get,” he said.

The successful outcome of the OPEC+ meeting on Saturday represents a further return to normality in relations between its members, after a row in March between the world’s two largest producers – Saudi Arabia and Russia – destroyed a previous supply cuts deal.