Page 4 - MEOG Week 29

MEOG Commentary MEOG

OPEC+ agrees to ease

cuts from August

As expected, the group have agreed to ease output cuts from August
following the swift action taken earlier this year to counter oil price freefall.

oPeC RuSSIA, Saudi Arabia and the rest of the OPEC+ during May, June and July. under the current
alliance of oil producers agreed on July 15 to ease plan, cuts will be tapered further to 5.8mn bpd
record supply cuts from August, returning some between January 2021 and April 2022.
What: 2mn barrels per day (bpd) of oil to the market. Compliance with OPEC+ quotas has also
OPEC+ will allow an They said the move was justified given the recov- improved. Members that initially struggled to
additional 2mn bpd of oil ery in global fuel demand from historic lows meet their quotas under the agreement have
to flow to international at the height of the coronavirus (COVID-19) cleaned up their act. Iraq had been the worst
markets from August until pandemic. offender, producing 600,000 bpd more than it
the end of the year. Benchmarks were more or less unchanged should have done in May. But it closed the gap
following the announcement, which was widely to 100,000 bpd in June and has agreed to deeper
Why: anticipated. Brent closed at just above $43 per cuts between July and September to compensate
Prices have corrected barrel on July 17, around the same level as a week for past failings (See: Iraq cuts exports to Asia and
following the historic earlier, while West Texas Intermediate (WTI) Europe to meet OPEC+ commitments, page 8).
volatility of the first and ended at just above $40.5 per barrel. News of oil “As we move to the next phase of the agree-
second quarters. supply coming back on stream next month was ment, the extra supply resulting from the sched-
offset by data released by the uS Energy Infor- uled easing of production cuts will be consumed
What next: mation Administration (EIA), which showed as demand continues on its recovery path,” Saudi
Flows will increase that uS crude inventories had dropped 7.5mn Energy Minister Prince Abdulaziz bin Salman
further in January 2021, barrels in the week that ended July 10 – a greater said in a video conference after meeting with
when an additional decline than was expected and indicating robust his OPEC+ counterparts. “Economies around
1.9mn bpd will be added, growth in fuel demand. the world are opening up, although this is a cau-
with this level to be OPEC+ will keep oil production at 7.7mn tious and gradual process. The recovery signs are
maintained until April bpd below the agreed baseline from August 1 unmistakeable.”
2022. until the end of the year, versus 9.7mn bpd below “The oil market is heading in the right

P4 www. NEWSBASE .com Week 29 22•July•2020