June 08, 2020 / 03:47 PM / by Irina Slav of Oilprice.com /
Header Image Credit: @OPECSecretariat
OPEC+ agreed on Saturday to extend 9.7-million-bpd cuts in daily crude oil production through the end of July, lending oil prices some support, but far less than some may have expected.
According to Reuters, the moderate increase in prices was a result of disappointment among traders that the extension was only by a single month. However, this was made clear from the beginning of negotiations, and there was even internal opposition to this extension that made reaching an agreement that much harder.
Monday morning prices saw Brent crude trading at $43.11 a barrel, up by close to 2 percentage points from Friday's close, while West Texas Intermediate was trading at $40.14, up by 1.44 percent from Friday. That's still nowhere near pre-crisis prices but in a few months, the market could swing into a deficit, according to one analyst who spoke to Reuters, and prices could rise higher.
Prices started to slip mid-morning, with Brent trading at $41.57 per barrel, down 1.73%. By 9:11 EDT WTI had slipped to $38.61.
$40 per barrel is high enough for some U.S. shale producers and they will waste no time in restarting production shut in during the crisis. And then there is Libya: it has been exempted from production cuts but until recently it has also been involuntarily overcomplying, with its oil industry battered by faction fighting. Now, its largest oil field, El Sharara, is reportedly back in production, which could add some 200,000 bpd to the OPEC+ total.
There is also the problem of compliance among some OPEC members. Saudi Arabia put its foot down at the Saturday meeting, insisting that Iraq and Nigeria not only deepen their production cuts to match their quotas but also deepen them further to compensate for shortfalls in compliance last month. Yet history suggests this will not be enough to get them in line.
"OPEC+ faces a catch-22 situation," Harry Tchilingurian, head of global commodity strategy at BNP Paribas, told Reuters. "The resumption of output... may moderate the pace of rebalancing of the oil market."