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Energy ministers from the OPEC+ alliance of oil producers are considering whether or not to extend historic cuts to crude output for a further period, in view of global uncertainties about demand, as COVID-19 cases surge worldwide.
Policymakers from the 23 OPEC+ grouping – led by the two biggest producers Saudi Arabia and Russia – have been consulting ahead of a crucial full meeting of the Organization of Petroleum Exporting Countries this week to decide whether to put an extra two million barrels of oil per day back onto global markets from next month.
Trading experts said that a further extension of the current level of cuts – around 7.7m barrels per day – was likely in view of continuing uncertainty about the global economic outlook.
Mike Muller, head of Asian business for global crude trader Vitol, told a forum organized by the consultancy Gulf Intelligence: “The market consensus is that they will hold off on the full increase. The question is for how long – three or six months?”
Prince Abdulaziz Bin Salman, the energy minister of Saudi Arabia and chairman of the OPEC+ ministerial committee, has indicated his willingness to consider “tweaks” to the current schedule in view of economic uncertainties and fragile oil demand growth.
The OPEC+ policymakers’ calculations have been complicated by the recent strong rise in the price of crude. Brent, the global benchmark, enjoyed its third consecutive week of rising prices last week, standing at $48.27 per barrel.
Rising oil prices would suggest greater demand in the global market, and therefore less reason for OPEC+ to abandon the timetable for resumption of supply it agreed last April at the height of the crisis that saw some prices fall into negative territory.
On the other hand, some OPEC+ countries are keen to increase export levels as their economies suffer from the effect of pandemic lockdowns.
Nigeria has argued that the OPEC+ rules should take into account the economic situation in individual member countries, a view to which Saudi Arabia is believed to be opposed because it would open the way for other countries to claim “exceptional circumstances”, undermining OPEC+ unity and credibility.
Iraq, another producer which has had trouble meeting OPEC+ limits this year, gave OPEC+ a boost on Saturday as its oil minister, Ihsan Jabbar, was reported in local media as saying the country would fall in line with the current limits and not seek an exemption, for fear of the damage that might cause to oil prices.
The crucial factor in deciding the extension and its duration is the relationship between Saudi Arabia and Russia, who have acted in tandem since the volatility of last spring.
Russia’s preference is to extend the current cuts for three months, according to reports from Moscow ahead of the OPEC+ ministers’ meeting.
