OPEC oil output has hit its lowest level in over two decades ahead of OPEC’s meeting on June 9-10 to discuss the duration and magnitude of future production cuts.
The cartel’s production dropped by 5.91 MMBbl/d in May to bring total production to 24.77 MMBbl/d, per Reuters. Prompt-month WTI has advanced nearly 50% since the OPEC announcement was made on April 13, settling at $33.71 on May 28, 2020.
OPEC will convene June 9-10 to discuss the future of its supply quotas. Specifically, the cartel will have to decide whether the supply quotas should be extended past July. During the last meeting in April – a special interim meeting – production curtailments of 10MMBbl/d were negotiated, providing support to energy markets that were in turmoil.
Several OPEC countries have said that they intend to cut deeper than required per the April meeting’s agreement. Saudi Arabia, the largest OPEC producer, has said they plan to curtail an additional 1 MMBbl/d. This brings the kingdom’s total pledge of supply cuts to 5 MMBbl/d from the April production level. The UAE and Kuwait signaled they were ready to follow with smaller curtailments of their own, while Russia sits on the sidelines.
Russia and Saudi Arabia have shouldered the largest share of the production cuts established in the April meeting. Together, those two countries combine for 7 MMBbl/d of reductions.
Russian President Putin and Saudi Prince MBS spoke earlier this week, according to the Kremlin, regarding the current state of the world’s energy markets. To many, the talks between the two countries seem to signal that both sides are willing to cooperate for future curtailments.
Still, there seem to be disagreements on when the cuts should end. Saudi Arabia would like to extend the cuts through the end of 2020, while Russia plans to start returning some production during July, according to Bloomberg.
The Kremlin believes that energy markets will balance without intervention by July, according to Bloomberg. After Tuesday’s meeting between Russian oil executives and Russian Energy Minister, Alexander Novak, Russia intends to take a wait-and-see approach amid concerns that Russian producers are not willing to cut further or to extend the current curtailments. An agreement was not reached during the meeting on Tuesday.
The biggest driver behind the duration of the cuts seems to be the return of demand. The world is watching to gain a better understanding of the long-term impacts of COVID-19 on energy demand. While virus-related lockdowns are easing, worries persist of a second wave of virus cases in the fall.
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