Oil rises as traders await OPEC+ meeting on extending supply cuts

Daniel Fowler
June 6, 2020

As long as the demand recover stays intact, we believe the crude market will be in deficit also in August and onwards, despite cuts being tapered by 2 million bpd to the scheduled 7.7 million bpd level.

Iraq, which had one of the worst compliance rates in May, according to a Reuters survey, agreed to additional cuts, OPEC sources said.

The meeting, originally scheduled for next week, was brought forward to Saturday at the suggestion of Algerian Oil Minister Mohamed Arkab, who now holds the rotating presidency of the Organization of Petroleum Exporting Countries.

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

In a speech in Washington, D.C., US President Donald Trump praised the work of OPEC+ in rebalancing the oil market. U.S. West Texas Intermediate (WTI) crude futures dropped 25 cents or 0.7% to US$37.04. Prices had slipped from recent highs earlier in the week on uncertainty about when OPEC+ would meet.

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Brent crude broke the $41 per barrel threshold for the first time since early March, while U.S. crude benchmark West Texas Intermediate (WTI) was up nearly two percent on Friday ahead of a meeting of leading oil producers.

"The growing fear is that not only will a deal to extend the deep cuts not be reached, but producers may even relax their current over-compliance".

Iraq has struggled to comply fully with their 1.061 million bpd target cut, delivering only around a 400 000 bpd cut for the first month of May 2020. Demand is quickly returning in China, but questions remain for many other nations, especially for consumption of diesel, the biggest-selling oil product globally.

A delegate-level OPEC+ technical committee, co-chaired by Saudi Arabia and Russian Federation, is scheduled to meet June 5 to discuss market conditions and review compliance. If the USA manages to recover most of its oil demand in the same fashion as China, oil traders will likely ignore the temporary weakness in Europe and push oil prices higher. Instead, the Paris-based organization now expects global investment in energy to plunge by 20 percent this year - the equivalent of $400 billion.

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