The leaders of OPEC+ gave fellow members an ultimatum: stop cheating on oil-output quotas or the strict measures that have revived oil prices may start to be phased out. Saudi Arabia and Russia’s hard line — which came after they already agreed between themselves on the need to maintain current supply restrictions for an extra month — injects greater uncertainty into the oil market. It pushed international crude prices lower just hours after they had risen above $40 a barrel for the first time since the pandemic.
Without a meeting to make changes to the OPEC+ deal, the group is due to start easing its cuts next month. That would potentially add millions of barrels a day of supply into what is still a tentative demand recovery, as the world emerges from coronavirus lockdown.
Under its current agreement, OPEC+ is set to taper its supply curbs to 7.7 million barrels a day from July 1, compared with 9.7 million barrels a day in May. For June, Saudi Arabia and several others have also pledged extra voluntary cuts amounting to 1.2 million barrels a day, that would be phased out the following month.
It’s unlikely that the group’s virtual conference will be brought forward to Thursday, said one person familiar with the matter. Talks on the previously scheduled date of June 9-10 could also be skipped if countries including Iraq and Nigeria don’t make firm promises to implement their supply curbs, said other people.
The Organization of Petroleum Exporting Countries and its allies have spent the past four days discussing various proposals. While a consensus had emerged between Saudi Arabia, Russia and others to maintain the deepest level of cuts for one more month, that was contingent on other countries making solid promises to implement their reductions in full, the people said, asking not to be named because the information was private.
Saudi Arabia has long urged other members to share the burden of production cuts more equitably. Russia, which was often a laggard in the past but has stuck to its pledges this time, is also pushing for any extension to be conditional on compliance.
Iraq and Nigeria, who have repeatedly flouted OPEC commitments during the past three years, made less than half of their agreed cutbacks last month. Those countries are being asked to pump less than their quota in the coming months to make up for producing too much in May, the people said.
In what appeared to be a response to the pressure earlier this week, Iraq’s finance minister and acting oil minister, Ali Allawi, made an unusual Twitter appearance, saying the country is committed. “Despite Iraq’s severe financial constraints, we’re addressing technical issues that will allow us to further reduce oil output,” he said.
His Nigerian counterpart Timipre Sylva posted a similar message on Instagram on Tuesday. He acknowledged that the West African country only made about half its pledged cuts last month, but promised that crude output will be within its quota by the end of June.