By Adedapo Adesanya
Oil prices rose more than three percent on Tuesday, June 2 amid reports that the Organisation of the Exporting Countries (OPEC) and its allies led by Russia known as OPEC+ are eyeing an extension to current production cut levels to more than three months beyond July.
Major producers including Russia want to keep the supply shortage, which is expected to end this month, for one more month, but Saudi Arabia, OPEC’s de facto leader, is reportedly in favor of a one to three-month extension.
Yesterday, the Brent Crude was closing in on the $40 per barrel threshold as it rose by $1.32 or 3.44 percent to sell at $39.64 per barrel, while the West Texas Intermediate (WTI) Crude was up $1.46 or 4.12 percent to trade at $36.85 per barrel.
OPEC+ group may decide in the coming days to roll over for a month or two the current level of production cut pegged at 9.7 million barrels daily beyond June to support last month’s price rally.
Despite reaching just 74 percent compliance from OPEC in May, according to a Reuters survey, the market will be looking at the OPEC+ assembly to extend the 9.7 million barrels a day cut through July or August, longer than until the end of June as originally planned.
According to the original agreement reached in April, OPEC+ was to cut 9.7 million barrel in combined production for two months—May and June—and then ease these to 7.7 million bpd, to stay in effect until the end of the year. Then, from January 2021, the production cut would be further eased to 5.8 million bpd, to remain in effect until the end of April 2022.
On Monday, there were reports that the OPEC+ group could hold its June meeting as early as Thursday instead of June 9 and 10. Russia, OPEC’s key partner in the pact, reportedly doesn’t mind moving the meeting to this week—a sign that Moscow might agree to extending the current production cuts beyond the end of June expiry for the record cuts.
Russia is a key factor in all OPEC+ meetings and decisions and the President in Moscow, Mr Vladimir Putin, discussed with US President, Mr Donald Trump via phone over the OPEC+ production cut agreements and the future of the oil market on Monday.
The OPEC+ agreement, “reached with the active support of the presidents of Russia and the United States, would lead to a gradual restoration of oil demand and price stabilisation,” the Kremlin said in a statement.
Analysts also noted that most likely, OPEC+ could extend current cuts until September. 1, with a meeting set before then to decide on next steps.
The decision reached could help push crude prices which remain well below the levels they enjoyed before Saudi Arabia and Russia kicked off a price war on March 6.
While the two benchmarks have plenty of losses to retrace before a full rebound to pre-pandemic levels, both staged strong rallies through May as storage pressures eased and supply stabilized.
Also, adding to the gains was the reopening of businesses in countries around the world after lockdown mandates caused by the coronavirus pandemic also oil boosted prices.
More people are now demanding for fuel because the economy has opened, and this will help to increase demand for energy products
In the United States, the largest producer, falling crude inventories at the nation’s oil storage hub in Cushing, Oklahoma, has also supported prices.
Industry group American Petroleum Institute (API) will release its weekly oil inventory report first with official data from the Energy Information Administration (EIA) following later on Wednesday.
