Page 6 - FSUOGM Week 23

FSUOGM COMMENTARY FSUOGM

OPEC+ Talks deadlock broken as

Iraq comes into the fold

After a week’s wrangling OPEC+ has come to an agreement to extend the production

cuts agreed for May and June

GLOBAL LAST week, we looked forward to OPEC+ and could have brought millions of barrels of oil onto
its allies coming together to decide whether or the market, undermining a tentative recovery as
WHAT: not to extend their historic output cuts. The the coronavirus (COVID-19) lockdown eases.
OPEC+ have agreed length and extent of global production curtail- With US shale production starting to come
to extend record oil ments remaining in place would be crucial to back online, OPEC’s careful management of the
production cuts for a sustaining crude’s rally after a record rebound demand recovery is crucial.
further month. last month. Saudi Arabia and the Kremlin, who were
A week on and after considerable wrangling on opposite sides of a vicious price war until a
WHY: and hitting a temporary impasse, the group peace deal in April, are now united against those
The possible end of the agreed a tentative deal, which crucially, included in OPEC who have consistently failed to shoul-
agreement at the end holdout member Iraq. Saudi Arabia and Russia der their share of the burden. Russia, a habitual
of June threatened the applied pressure on Iraq to get it to agree to make laggard, has complied punctiliously with the his-
recovery of oil. its share of cuts and to compensate for failing to toric deal brokered by President Donald Trump
comply in the past. in April, and wants to make sure others are doing
WHAT NEXT: so too.
Countries are asked to The agreement, which is still to be ratified, Saudi Arabia, OPEC’s de facto leader, and
commit to their quota cut would mean that OPEC+ will extend its record Russia have to perform a balancing act of push-
up to the end of July. production curbs for another month until the ing up oil prices to meet their budget needs
end of July. On the news, Brent crude, the global whilst not driving them much above $50 a bar-
benchmark, edged higher, nearing $40 a barrel. rel, which would encourage a resurgence of shale
The 23-nation partnership between the production from their US rival.
Organisation of Petroleum Exporting Countries The details of the deal between OPEC+ and
and other major producers has helped engineer a Iraq on compliance were not yet clear. Tougher
doubling in Brent prices since April. The oil price conditions will be difficult for Iraq to accept. It
surge has revived the fortunes of major energy made less than half of its assigned cutbacks last
companies such as ExxonMobil and Royal month, so compensating fully would require it
Dutch Shell, and reduced the fiscal hole in the to slash production by a further 24% to about
budgets of oil-rich nations. 3.28mn barrels per day (bpd). For a country
Failure to reach an agreement this month still rebuilding its economy following decades

P6 www. NEWSBASE .com Week 23 10•June•2020