Page 4 - MEOG Week 23

MEOG Commentary MEOG

OPEC+ deadlock broken

as Iraq comes to the table

After a week’s wrangling OPEC+ has come to an agreement
to extend the production cuts agreed for May and June.

oPeC+ LAst week, we looked forward to OPEC+ and The details of the deal between OPEC+ and
its allies coming together to decide whether or Iraq on compliance were not yet clear. tougher
not to extend their historic output cuts. the conditions will be difficult for Iraq to accept. It
What: length and extent of global production curtail- made less than half of its assigned cutbacks last
OPEC+ have agreed to ments remaining in place would be crucial to month, so compensating fully would require it
extend the oil production sustaining crude’s rally after a record rebound to slash production by a further 24% to about
cuts for a further month. last month. 3.28 million barrels a day. For a country still
A week on and after considerable wrangling rebuilding its economy following decades of
Why: and hitting a temporary impasse, the group war, sanctions and Islamist insurgency, that’s a
The possible end of the agreed a tentative deal, which crucially, included tall order. The government risks a backlash from
agreement at the end holdout member Iraq. saudi Arabia and Russia parliamentarians and rival political parties by
of June threatened the applied pressure on Iraq to get it to agree to make acceding to foreign pressure and foregoing cru-
recovery of oil. its share of cuts and to compensate for failing to cial oil sales.
comply in the past. While Iraqi Finance Minister and Acting Oil
What next: The agreement, which is still to be ratified, Minister Ali Allawi did pledge to improve com-
Countries are asked to would mean that OPEC+ will extend its record pliance with pledged cuts in an unusual twitter
commit to their quota cut production curbs for another month until the post last tuesday, he didn’t go any further. As
through to the end of July. end of July. On the news, Brent crude, the global saturday’s meeting got underway Assem Jihad,
benchmark, edged higher, nearing $40 a barrel. Iraq’s Ministry of Oil spokesperson, said in a
the 23-nation partnership between the statement that “despite the economic and finan-
Organisation of Petroleum Exporting Countries cial circumstances that Iraq is facing, the country
and other major producers has helped engineer a remains committed to the agreement.”
doubling in Brent prices since April. The oil price three other nations -- Angola, Kazakh-
surge has revived the fortunes of major energy stan and Nigeria -- also produced above their
companies such as ExxonMobil and Royal OPEC+ quotas in May. The three had already
Dutch shell, and reduced the fiscal hole in the agreed to bring their production in line with the
budgets of oil-rich nations. agreement.
Failure to reach an agreement this month The final deal in April set out historic cuts of
could have brought millions of barrels of oil onto 9.7 million barrels a day, or roughly 10% of global
the market, undermining a tentative recovery as oil supplies, to offset the unprecedented collapse
the coronavirus (COVID-19) lockdown eases. in demand caused by the virus lockdowns. Then
With Us shale production starting to come a few weeks later, saudi Arabia and its closest
back online, OPEC’s careful management of the allies in the Persian Gulf promised additional
demand recovery is crucial. supply restraint of 1.2 million barrels a day in
saudi Arabia and the Kremlin, who were June. It was not immediately clear whether these
on opposite sides of a vicious price war until a extra voluntary cuts would extend beyond June
peace deal in April, are now united against those as they are not part of the deal.
in OPEC who have consistently failed to shoul- After the massive oversupply earlier this year,
der their share of the burden. Russia, a habitual Russian Energy Minister Alexander Novak pre-
laggard, has complied punctiliously with the his- dicts there could be a supply deficit of 3 million
toric deal brokered by President Donald trump to 5 million barrels a day next month, Interfax
in April, and wants to make sure others are doing reported. That’s roughly in line with projections
so too. from an OPEC committee that met on Wednes-
saudi Arabia, OPEC’s de facto leader, and day, a delegate said.
Russia have to perform a balancing act of push- That would provide a stronger foundation for
ing up oil prices to meet their budget needs the crude price recovery, and also allow the cartel
whilst not driving them much above $50 a bar- to start chipping away at the billion-barrel stock-
rel, which would encourage a resurgence of shale pile that has built up during the crisis.
production from their Us rival. “saudi Arabia is taking a zero tolerance

P4 www. NEWSBASE .com Week 23 10•May•2020