An OPEC sign hangs outside the OPEC Secretariat in Vienna, Austria, on Nov. 29, 2017.
Akos Stiller | Bloomberg | Getty Images
OPEC agreed to extend the historic 9.7 million barrels per day production cut for an additional month in an effort to further reduce the market’s oversupply. The production cut extension, which will run through the end of July, still needs to be agreed upon by the group’s allies.
“Today we have grounds to be cautiously optimistic about the future, but we are not out of the woods yet and challenges ahead remain to be seen,” Saudi Arabia’s Energy Minister Prince Abdulaziz said in opening remarks as the OPEC+ meeting kicked off a little before 11am ET. He urged the group to display unity and come to a swift decision.
“Together we are stronger, together we can restore stability to oil markets and help rebuild the global economy,” he said.
Ahead of the meeting, the oil market displayed optimism over an agreement. On Friday West Texas Intermediate jumped 5.72% to settle at $39.55, while international benchmark Brent crude gained 5.78% to settle at $42.30. It was each contract’s sixth straight week of gains, and the highest settle since March 6.
One ongoing issue has been nations, including oil-dependent Iraq, not complying with their allocated quotas. As Saturday’s meeting got underway Assem Jihad, Iraq’s Ministry of Oil spokesperson, said in a statement that “despite the economic and financial circumstances that Iraq is facing, the country remains committed to the agreement.”
The nation will reportedly enact further production curbs from July through September in an effort to make up for its non-compliance, according to Reuters.
Under the current agreement, which was set during an extraordinary multi-day meeting in April, the 23-member group cut production by 9.7 million bpd beginning May 1 and through the end of June. The cuts would then begin to taper. From July through the end of 2020, 7.7 million bpd would be taken offline, followed by 5.8 million bpd from January 2021 through April 2022.
The cut — the largest in history — came as oil demand fell off a cliff due to the coronavirus pandemic. The International Energy Agency estimates that about one quarter of demand was sapped in April as billions of people around the world stayed home in an effort to slow the spread of Covid-19. The hit to demand came as producers continued to pump oil, which sent WTI tumbling into negative territory for the first time on record, while Brent fell to a 20-year low.
Since then, prices have steadily climbed higher as economies begin to reopen and as producers further rein in output. In the U.S., production has fallen from a record 13.1 million bpd in March to 11.2 million bpd, according to the U.S. Energy Information Administration. WTI is still about 40% below its January high of $65.65, however.
“Although small in scale, this cut is however important in squaring the group’s strategy, which has this year alone swung from price focused cuts, to market-share recapture, to internal price war to finally a record large cut,” Goldman Sachs’ Damien Courvalin wrote in a note to clients Friday.
The closely watched meeting was initially scheduled for June 9-10.
– CNBC’s Brian Sullivan and Michael Bloom contributed reporting.