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OPEC, Russia extend record oil cuts to end of July

CommoditiesJun 06, 2020 02:30PM ET
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© Reuters. FILE PHOTO: A 3D printed oil pump jack is seen in front of displayed stock graph and Opec logo in this illustration picture

By Ahmad Ghaddar, Rania El Gamal and Alex Lawler

MOSCOW/DUBAI/LONDON (Reuters) - OPEC, Russia and allies agreed on Saturday to extend record oil production cuts until the end of July, prolonging a deal that has helped crude prices double in the past two months by withdrawing almost 10% of global supplies from the market.

The group, known as OPEC+, also demanded countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.

OPEC+ had initially agreed in April that it would cut supply by 9.7 million barrels per day (bpd) during May-June to prop up prices that collapsed due to the coronavirus crisis. Those cuts were due to taper to 7.7 million bpd from July to December.

"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 told the video conference of OPEC+ ministers.

Benchmark Brent crude (LCOc1) climbed to a three-month high on Friday above $42 a barrel, after diving below $20 in April. Prices still remain a third lower than at the end of 2019.

"Prices can be expected to be strong from Monday, keeping their $40 plus levels," said Bjornar Tonhaugen from Rystad Energy.

Saudi Arabia, OPEC's de facto leader, and Russia have to perform a balancing act of pushing up oil prices to meet their budget needs while not driving them much above $50 a barrel to avoid encouraging a resurgence of rival U.S. shale production.

It was not immediately clear whether Saudi Arabia, the United Arab Emirates and Kuwait would extend beyond June their additional, voluntary cuts of 1.18 million bpd, which are not part of the deal.

Graphic - OPEC+ Cuts for May and June: https://fingfx.thomsonreuters.com/gfx/editorcharts/yxmvjorrwpr/eikon.png

BULGING INVENTORIES

The April deal was agreed under pressure from U.S. President Donald Trump, who wants to avoid U.S. oil industry bankruptcies.

Trump, who previously threatened to pull U.S. troops out of Saudi Arabia if Riyadh did not act, spoke to the Russian and Saudi leaders before Saturday's talks, saying he was happy with the price recovery.

While oil prices have partially recovered, they are still well below the costs of most U.S. shale producers. Shutdowns, layoffs and cost cutting continue across the United States.

"I applaud OPEC-plus for reaching an important agreement today which comes at a pivotal time as oil demand continues to recover and economies reopen around the world," U.S. Energy Secretary Dan Brouillette wrote on Twitter after the extension.

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

Rystad's Tonhaugen said Saturday's decisions would help OPEC reduce inventories at a rate of 3 million to 4 million bpd in July-August. "The quicker stocks fall, the higher prices will get," he said.

Nigeria's petroleum ministry said Abuja backed the idea of compensating for its excessive output in May and June.

Iraq, with one of the worst compliance rates in May, agreed to extra cuts although it was not clear how Baghdad would reach agreement with oil majors on curbing Iraqi output. [OPEC/O]

Iraq produced 520,000 bpd above its quota in May, while overproduction by Nigeria was 120,000 bpd, Angola's was 130,000 bpd, Kazakhstan's was 180,000 bpd and Russia's was 100,000 bpd, OPEC+ data showed.

OPEC+'s joint ministerial monitoring committee, known as the JMMC, will meet monthly until December to review the market, compliance and recommend levels of cuts. JMMC's next meeting is scheduled for June 18.

OPEC and OPEC+ will hold their next scheduled meetings on Nov. 30-Dec. 1.

Graphic - OPEC May Production: https://fingfx.thomsonreuters.com/gfx/editorcharts/nmopakdaopa/eikon.png

OPEC, Russia extend record oil cuts to end of July
 

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Comments (25)
Roman Cerny
Roman Cerny Jun 07, 2020 6:31AM ET
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Qute from the agreement: "The subscription to the concept of compensation by Participating Countries who are unable to attain full conformity (100%) in May and June 2020, to accommodate the pending production adjustment in July, August and September 2020, in addition to their already agreed production adjustment for such months." I dont think at all that those countries like Nigeria or Iraq will comply with this. There is no way how to push them into this and their budgets are heavily underfinanced. They desperately need money. Not speaking about corruption and little control over their production. This agreement is just wishful pledge of something unrealistic.
John Licon
John Licon Jun 06, 2020 11:03PM ET
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best oil stock for Monday??
Fairway TradeUS
Fairway TradeUS Jun 06, 2020 8:01PM ET
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Oil is in plastics and more than just fuel oil it WTI is already at 39.00Oil will move higher to just look at the shale producers .
Ahmad Sherhan
Ahmad Sherhan Jun 06, 2020 8:01PM ET
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thus is not really a new news. russia and saudi already agreed to one month cut before this meeting. this meeting is about OPEC pushing those who did not comply with the quota before to cut their production. and then there is news about libya's oil coming back online
Dizzle TheRizzle
Dizzle TheRizzle Jun 06, 2020 6:58PM ET
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Too many people shorting oil, oil will go up. Wont be able to go down until the shorts leave.
Thibault Santy
Thibault Santy Jun 06, 2020 6:58PM ET
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? Why do u think there are too many ppl shorting oil right now? Seems like a pretty dumb thing to do atm
Berat Arda Dedekoca
Berat Arda Dedekoca Jun 06, 2020 6:14PM ET
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This time, Gold will head up to 1800s despite this oil cut scenerio
Klaus Weyers
Klaus Weyers Jun 06, 2020 6:13PM ET
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am shorting cl at the open.. target 35
Mohamed Abdalla
Mohamed Abdalla Jun 06, 2020 6:00PM ET
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Whats the expected opening price ?
Taylor Huddlestun
Taylor Huddlestun Jun 06, 2020 6:00PM ET
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I'm hoping for a "buy the rumor, sell the news" type of deal in the energy markets tomorrow! Highly unlikely so I'm hoping the pain went be too bad. Kept telling myself just to sell in AH but didn't pull the trigger.
Taylor Huddlestun
Taylor Huddlestun Jun 06, 2020 6:00PM ET
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and I meant Monday
Allen Drewe
Allen Drewe Jun 06, 2020 6:00PM ET
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There is 0 chance oil goes lower monday
Beer Time
Beer Time Jun 06, 2020 5:55PM ET
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Quote on investing: Prices can be expected to be strong from Monday, keeping their $40 plus levels," said Bjornar Tonhaugen from Rystad Energy. Saudi Arabia, OPEC's de facto leader, and Russia have to perform a balancing act of pushing up oil prices to meet their budget needs while not driving them much above $50 a barrel to avoid encouraging a resurgence of rival U.S. shale production.
Taylor Huddlestun
Taylor Huddlestun Jun 06, 2020 5:55PM ET
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US won't care. They have already started restarting production. I won't be surprised to see the rig count start moving up this week.
Beer Time
Beer Time Jun 06, 2020 5:55PM ET
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159148075595663.jpg
159148075595663.jpg Target 49
Matt Novakovich
Matt Novakovich Jun 06, 2020 5:55PM ET
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Russia hates the US so bad that they want less money so we'll have less money too?
Allen Drewe
Allen Drewe Jun 06, 2020 5:11PM ET
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WTI to 45
Michael Gulledge
Michael Gulledge Jun 06, 2020 5:11PM ET
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In the next week?
Michael Gulledge
Michael Gulledge Jun 06, 2020 5:11PM ET
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Or month?
Jordalf Labrador
Jordalf Labrador Jun 06, 2020 3:38PM ET
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what on the stock market
Raza Rehman
Raza Rehman Jun 06, 2020 3:27PM ET
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will crude oil is up or down what the price u r looking for
Roman Cerny
Roman Cerny Jun 06, 2020 1:23PM ET
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Well counting production over the agreed quotas, it is more than 1 mil bpd extra. So in fact the real cut is smth like 8,5 mil and therefore the effect is diminished.
Allen Drewe
Allen Drewe Jun 06, 2020 1:23PM ET
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They are cutting they extra production in addition to their normal cuts going forward
Roman Cerny
Roman Cerny Jun 06, 2020 1:23PM ET
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Allen Drewe  They extend cuts agreed in April. However, above mentioned countries did not cut as promised. It means oversupply persists, also taking into account suspended flights. Even the little number of flights in operation here in Europe are countiunously cancelled as the capacity is very low. People are afraid of traveling. I do not see any room now for some high price growth as the demand is and will be for some time still very low.
David Bennett
David Bennett Jun 06, 2020 1:16PM ET
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great news, now keep US production down and operators have a fighting chance not to go bankrupt in 2021.
Alan Rice
Alan Rice Jun 06, 2020 12:32PM ET
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REAL PROGRESS for Mankind MIGHT begin when crude oil sells around $400/bbl, (worldwide). Currently, "we are in the PROCESS of destroying the planet."-(an accurate quote from Jeff Besos).
Kaveh Sun
Kaveh Sun Jun 06, 2020 12:32PM ET
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Real progress begins when some one invents stuffs that r cheaper, faster, further or more convinience.
Kaveh Sun
Kaveh Sun Jun 06, 2020 12:32PM ET
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Dont push # down our th roats n call that real progress.
Kaveh Sun
Kaveh Sun Jun 06, 2020 12:32PM ET
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The moment the modern human arrived, we’ve destroyed the planet. Because we cant invent anything usefull, make # very expensive,out of reach to force us to seek alternatives is just wrong.
Umut Saglam
Umut Saglam Jun 06, 2020 12:32PM ET
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If oil gets that expensive no low/average joe will be able to use his car anymore aka useless. Which is very bad.
Russell Murray
Russell Murray Jun 06, 2020 12:32PM ET
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Besos must be holding UCO.
Eda Mucha
Eda Mucha Jun 06, 2020 11:43AM ET
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those lousy opec members know very well why they organize the meeting while the stock is off!! russia will refuse further cut under these conditions ($ 40 pb) and that will plunge the price again...
Allen Drewe
Allen Drewe Jun 06, 2020 11:43AM ET
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Russia has already agreed to extend cuts
tom dery
tom dery Jun 06, 2020 11:43AM ET
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the deal is done and agreed on. cuts extend to july
Adi Avivi
Adi Avivi Jun 06, 2020 10:46AM ET
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bullish? yes. already priced? mmm.. part of it. I expect 45 tops this week. not more then that. but only gods and the Saudis know
Filip Krivosija
Filip Krivosija Jun 06, 2020 10:38AM ET
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What will happen now with oil? Can we espect growth?
Allen Drewe
Allen Drewe Jun 06, 2020 10:38AM ET
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$45
Tan Kok Teong
Tan Kok Teong Jun 06, 2020 10:33AM ET
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Hope they can cooperate to hold up the price or at least keep it there - but still got to put in mind — wall street & main street is way far apart ( not right )
Abhishek mohta
crudemaniac Jun 06, 2020 10:12AM ET
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very much positive, as Iraq problem is not a problem for now,
Shakeel Ahmad
Shakeel Ahmad Jun 06, 2020 9:45AM ET
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i think effect will be neutral
Lemang Masak Kicap
Lemang Masak Kicap Jun 06, 2020 9:32AM ET
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nice
Nagaa Ali
Nagaa Ali Jun 06, 2020 9:32AM ET
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Tahniah tuan..
Adam Ryan
Adam Ryan Jun 06, 2020 9:32AM ET
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Nagaa Ali  bagus sekali
Surjit singh
Surjit singh Jun 06, 2020 9:18AM ET
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Let's see if oil passes $50...
Buzzy Jefferson
Buzzy Jefferson Jun 06, 2020 9:16AM ET
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Looks like Russia blinked here. Knew they would.
Leno Mad
Leno Mad Jun 06, 2020 1:32AM ET
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It's time to let go of this price fixing and let the oil price be determined by a free market. There is enough supply capacity from sufficiently different resources.
Allen Drewe
Allen Drewe Jun 06, 2020 1:32AM ET
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Lets not. I dont feel like watching the entire oil economy collapse.
Michael Keith
Michael Keith Jun 06, 2020 1:32AM ET
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that would be great.the problem is the free market doesn't work when two thirds of the producing countries don't know what a free market is
Roman Cerny
Roman Cerny Jun 06, 2020 1:32AM ET
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Allen Drewe  Oil economy needs to collapse. Why do we need it? The human mankind will at least faster shift its attention to alternative sources.
Roman Cerny
Roman Cerny Jun 06, 2020 1:32AM ET
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Michael Keith  Including USA.
Ted Dirty
DirtyTed Jun 06, 2020 1:32AM ET
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opec should cut production to zero  for 1 month..then we are talking business and free market
 
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