Opec, allies agree to extend deep output cuts through July

Vienna

OPEC members, led by Saudi Arabia, and other key oil producers, agreed on Saturday to extend historic output cuts through July, as oil prices tentatively recover and coronavirus lockdowns ease.

The 13-member cartel and its allies, notably Russia, decided to extend by a month deep May and June cuts agreed in April to boost prices, the Organization of the Petroleum Exporting Countries (Opec) said in a statement.

But Mexico, which had already made clear ahead of the talks that it "could not adjust... production further", announced that it would not be complying.

"All participating countries... agreed the option of extending the first phase of the production adjustments pertaining in May and June by one further month," the Opec statement said.

Under the terms of the April agreement, Opec and Opec+ pledged to cut output by 9.7 million barrels per day (bpd) from May 1 until the end of June. The cuts were then to be gradually eased from July, to 7.7 million bpd until December.

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A bone of contention ahead of the meeting had been the willingness of each country to abide by the agreed production quotas.

According to data intelligence company Kpler, Opec+ reduced output by around 8.6 mbpd in May, less than planned, with Iraq and Nigeria seen as the most resistant.

Opec said all meeting participants agreed on Saturday that countries that failed to comply fully so far were willing to make up for it in July, August and September.

Nevertheless, it was precisely that earlier failure that led Mexico on Saturday to refuse to extend its cuts.

"There are other countries that extended the cuts to July. We told them no, that we are maintaining the agreement signed in April. There is no problem," Mexico's Energy Minister Rocio Nahle told reporters during a visit to a petrochemical plant in Veracruz state.

She said Mexico "fully respected" the original agreement, under which it agreed to cut production by 100,000 barrels a day in May and June, but other countries "did not respect it", without specifying which ones.

Despite the difficulties, the output cuts have helped support oil prices, which rose to around US$40 per barrel at the start of June for both the US benchmark, West Texas Intermediate (WTI), and Europe's Brent North Sea contracts. Both had slumped to historic lows in April, with Brent falling as low as US$15 and WTI briefly entering negative territory. AFP