Saudi Arabia and Russia have reached a preliminary agreement to extend the current level of the OPEC+ production cuts by one month, provided that the laggards in compliance ensure over-compliance going forward to compensate for flouting their quotas so far, OPEC sources told Reuters on Wednesday.
"Any agreement on extending the cuts is conditional on countries who have not fully complied in May deepening their cuts in upcoming months to offset their overproduction," an OPEC source told Reuters.
According to the original agreement reached in April, OPEC+ was to cut 9.7 million bpd in combined production for two months-May and June-and then ease these to 7.7 million bpd, to stay in effect until the end of the year. Then, from January 2021, the production cuts would be further eased to 5.8 million bpd, to remain in effect until end-April 2022.
Despite weak compliance from OPEC in May, as per a Reuters survey, the market expects that the OPEC+ coalition is motivated enough to extend the 9.7-million-bpd cuts through July or August.
On Monday, reports emerged that the OPEC+ group could hold its June meeting this week, earlier than the initial plans to hold the teleconference on June 9 and 10. Related: Petrobras Oil Stockpiles Are "Paradoxically" Low
However, an earlier meeting is being held up by the fact that the leaders of the pact, Saudi Arabia and Russia, will be seeking assurances from all non-compliant members that they will over-comply going forward to compensate for the loose compliance in May, an OPEC delegate told Argus today. According to the delegate, there will be "no free ride" for non-compliant members in the OPEC+ deal. These producers likely include Iraq and Nigeria from OPEC and Kazakhstan from non-OPEC.
OPEC's second-largest producer and the biggest laggard in the output cuts, Iraq, said on Tuesday that it would further reduce production and that it remains committed to the OPEC+ pact.
Oil prices retreated following the reports of a one-month extension, after earlier on Wednesday prices had hit nearly three-month highs, with Brent Crude breaking above $40 a barrel.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More