​OPEC+ discusses early meeting, short extension of output cuts

OPEC+ is considering meeting this week, a few days earlier than planned, to discuss a short extension of its current production cuts.

The group could decide later on June 1 whether to bring forward their next virtual meeting to June 4, said delegates. That conference would focus on a proposal, favored by Saudi Arabia and its Gulf allies, to maintain record output curbs for an extra one to three months instead of tapering them from July 1, one delegate 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.

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. At about $35 a barrel, prices are below what most producers in the Organization of Petroleum Exporting Countries need to cover planned government spending.

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.

West Texas Intermediate crude and Brent, the global benchmark, were little changed on Monday as the protests against police brutality in the U.S. damped risk sentiment.

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 the proposal for June 4 instead of June 9-10.

The 23-nation coalition committed to lowering output by 9.7 million barrels a day, or about 10 per cent 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.

When asked about Russia’s stance, Kremlin spokesman Dmitry Peskov told reporters on a conference call: “Let’s not get ahead of ourselves.”

If the decision to move the meeting is confirmed, it would mean also shifting committee meetings that normally take place before a ministerial conference 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.

© 2020 Bloomberg L.P.