Russia, Saudi Arabia Agree to Extend Output Cuts Under OPEC

Daniel Fowler
June 5, 2020

The OPEC+ group, comprising the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russian Federation, is cutting output by 9.7 million barrels per day (bpd) - about 10% of global output before the coronavirus crisis - in May and June to support prices.

Futures in NY fell 1.9% to below $37 a barrel after closing at the highest since March 6.

Oil prices were also pressured as United States refined product inventories surged in the week, raising concerns about demand.

Futures in NY fell 1.6% with OPEC+ still not confirming a date for its June meeting amid wrangling over Iraq's commitment to cuts.

The WTI Crude Oil market has gone back and forth during the trading session on Thursday as we await the decision by OPEC as to whether or not to increase production cuts.

But they failed to agree on holding an OPEC+ meeting on Thursday to discuss the cuts, with OPEC sources saying it would be conditional on countries that have not complied with their targets so far deepening their cuts.

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"There are discussions between the ministers about the possibility of making up for poor May compliance in June and July", one source said.

A ministerial conference could be called at short notice, possibly on Friday, if there was an agreement, the sources said. If OPEC+ cuts are extended, and the market retains its overall risk-on sentiment, then a break through $41.19/bbl. would set up the 61.8% Fibonacci retracement level at $43.36/ the next target ahead of the 200-dma, now at $44.79/bbl.

'Saudi and Russian Federation are pushing hard, not just asking Iraq, Nigeria, and other laggards to ramp-up compliance but also pushing for deeper cuts in the months ahead to make up for past non-compliance.

"Overall the market is moving in the right direction with the gradual easing of the lockdown". The White House is suspending passenger flights to the Chinese airlines as relations between the world's two biggest economies deteriorate, while civil unrest across America is complicating the economic recovery from the virus and risking a second wave of infections.

"It shows the recovery in gasoline and distillate demand is not V-shaped. Inventories are still above average levels and that needs to be tackled".

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