OPEC and its allies will restore some oil supplies next month, but the impact will be “barely felt” as demand recovers from the coronavirus crisis, said Saudi Arabia’s Energy Minister.
After almost three months of historic output curbs to offset the worst effects of the global pandemic, the 23-nation coalition led by Riyadh and Moscow will proceed with its plan to gradually taper the reductions. The decision was widely expected but still carries some risks for the cartel after a resurgence of the virus in the U.S., the world’s largest oil consumer.
Crude pared gains in New York, and was 0.7% higher at $40.59 a barrel as of 9:35 a.m. local time.
“As we move to the next phase of the agreement, the extra supply resulting from the scheduled easing of production cuts will be consumed as demand continues on its recovery path,” Saudi Energy Minister Prince Abdulaziz bin Salman said at the start of an OPEC+ video conference on Wednesday. “Economies around the world are opening up, although this is a cautious and gradual process. The recovery signs are unmistakable.”
The Organization of Petroleum Exporting Countries and its allies will withhold 7.7 million barrels a day from the market in August, compared with cuts of 9.6 million currently. The group’s two largest members, Russian and Saudi Arabia, publicly backed the move, and other ministers participating in the video conference had agreed in principle, delegates said.
That supply increase will be offset somewhat by members that didn’t fulfill their commitments to reduce output in May and June – such as Iraq and Nigeria. They will make up for those shortcomings with extra reductions in August and September.
Those compensation cuts are a crucial principle and the group must resist the temptation to relax, Prince Abdulaziz said. The kingdom’s own exports won’t change next month, despite the output increase, as domestic demand rises, he said.
The tapering of production cuts is “fully in line with the current market trends,” said Russian Energy Minister Alexander Novak. “Almost all of the output hikes will be consumed in domestic markets of the producing countries as the demand is recovering.”
OPEC+ is reviving supplies as fuel consumption picks up with the lifting of lockdowns around the world. The alliance’s curbs, equivalent to almost 10% of global supply, helped more than double crude prices from the lows hit in late April, when demand plunged by more than 20 million barrels a day.
(Updates with oil price in third paragraph.)
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