OPEC+ to Discuss Extending Cuts as Early Meeting Seen

(Bloomberg) --

OPEC+ will discuss a short extension of their production cuts at a meeting that looks set to be held sooner than planned.

The virtual gathering will focus on a proposal, favored by Saudi Arabia and its Gulf allies, to maintain record output curbs for an extra one to three months, one delegate said.

But two days after the idea of bringing forward the meeting by a few days to June 4 was first floated, delegates still hadn't settled on the new date. Wrangling continued behind the scenes, delegates said.

“The Saudis are clearly looking for support from other members to keep production levels lower for longer,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., told clients in a note.

Any changes to the existing deal -- struck in April as energy demand and prices collapsed because of the coronavirus pandemic -- will hinge on negotiations between Moscow and Riyadh. Russia has indicated it wants to start easing the cuts next month as planned, yet the two countries have also pledged to coordinate closely.

When asked about the Kremlin's stance, spokesman Dmitry Peskov told reporters on a conference call on Monday: “Let's not get ahead of ourselves.” Later in the day, the Russian government said in a statement that President Vladimir Putin and Donald Trump discussed the OPEC+ deal and its role in stabilizing oil prices.

Oil prices have rallied as the output curbs coincided with a stronger-than-expected rebound in demand. But with lockdowns easing across the globe, fears that the pandemic could have a second wave make predictions of a recovery perilous. With Brent crude trading under $39 a barrel on Monday, prices are below what most producers in the Organization of Petroleum Exporting Countries need to cover planned government spending.

Read: OPEC's Next Hurdle: the Billion-Barrel Oil Glut Left by Covid-19

Because the situation in the oil market is changing fast, the preference is to take short-term measures and not disrupt the process of bringing supply and demand back into balance, one delegate said.

To ensure OPEC+ responds quickly to developments, meetings of either the entire group or the ministerial committee that oversees its deal could occur as often as every month over the summer, said another delegate.

Reaction Time

An earlier meeting date would give the oil cartel more flexibility to change its current production limits. OPEC members usually decide their plans for shipping oil to customers for July in the first week of June, so an earlier meeting would give them more time to react.

Algerian Energy Minister Mohamed Arkab, who holds the rotating presidency, circulated on Saturday the proposal for June 4 instead of June 9-10.

The 23-nation coalition of OPEC and its allies committed to lowering output by 9.7 million barrels a day, or about 10% of global supply, in May and June. In addition, Saudi Arabia, Kuwait and the United Arab Emirates made further voluntary cuts of about 1.2 million barrels a day for June, bringing the total OPEC+ curbs to almost 11 million barrels a day.

Those cuts are meant to be eased to about 7.7 million barrels a day in July, followed by an additional tapering at the start of 2021. Nigeria and the state oil company of Abu Dhabi, the United Arab Emirates' capital, have already announced plans to increase exports next month.

Read: The Oil Producer That Got Paid Zero for Its Barrels Last Month

If the decision to move the meeting is confirmed, it would mean also shifting committee meetings that normally take place before a ministerial conference to later in the month. OPEC had a Joint Technical Committee to assess implementation of the current supply cuts scheduled for June 5, and a Joint Ministerial Monitoring Committee for June 8.