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Oil prices rise on OPEC+ deal extension
In addition to the extension, it was announced that Saudi Arabia will be reversing nearly all the discounts on its crude, with some of the increases resulting in the sharpest jumps in over 20 years.
Michael Burns, energy partner at law firm Ashurst, commented; “The extension of cuts has seen prices rise. Hopefully this provides a platform for companies that a few weeks ago were looking extremely challenged to build from. However, the fall in demand from coronavirus remains a real issue for markets and companies to wrestle with.”
The days running up to the meeting saw prices rise to almost $40/bbl as expectations grew for an extension of the OPEC+ production cut, with OPEC and Russia reportedly moving closer to an agreement for the July and August period then dropping back as doubts began to emerge over the next step.
Russia and Saudi Arabia’s relations were in the spotlight once again during the virtual meeting, brought forward from the 9 June, with Moscow indicating a desire to ease constraints on cuts, while the Kingdom showed its preference for measures to remain the same throughout July. The outcome was a victory for both however, who put their price war behind them to jointly persuade Nigeria, Iraq and others to fulfil their promises to cut production.
It was in April during the first wave of the COVID-19 pandemic, that OPEC+ agreed to cut output by a record 9.7 million barrels per day, equivalent to around 10% of global output. This decision was made in order to lift prices that had dropped dramatically due to near-worldwide lockdown measures. The resultant reduction in output not only from OPEC+ members (predominantly Saudi Arabia and Russia) but also from the USA and Canada, helped to lift oil prices back around $35 per barrel.
With several countries easing lockdown measures creating fears of a second wave of the virus, the decision to extend production cuts for one month, whilst falling short of market hopes, will help to underpin the oil market’s recovery and could see prices rise to as much as $50 a barrel.
The cartel will meet in the second half of the month to review the oil market once again with the next full ministerial OPEC+ meeting scheduled for 30 November.