Opec+ extra cuts will end in June: Update 2

Adds Novak comments in final two paragraphs

Mideast Gulf countries that pledged deeper crude cuts beyond their Opec+ commitments this month do not plan to extend these into July, Saudi oil minister Prince Abdulaziz bin Salman said today.

Opec+ agreed on 6 June to extend to the end of July the first phase of its two-year production restraint deal — which is to cut May-June production by 9.7mn b/d, largely from an October 2018 baseline — for all participants except Mexico.

Saudi Arabia, Kuwait and the UAE pledged additional cuts in June, which would cap Saudi production at 7.49mn b/d, Kuwaiti output at or below 2.09mn b/d and UAE production at around 2.35mn b/d. Non-Opec Oman pledged to take 15,000 b/d off the market in June, above its commitment. In total these will remove around 1.2mn b/d this month.

These deeper voluntary cuts will not be extended into July, Prince Abdulaziz said today. He said that they have served their purpose and improved the atmosphere among the group to encourage countries to act in a more committed way.

The deal struck at the weekend hinges on countries that produce above their quotas in May and June making up for this non-compliance in the July-September period. This means that overall cuts could exceed the 9.6mn b/d for July and the 7.7mn b/d planned for August and September, Prince Abdulaziz said. He said that compliance will be self-enforced, although the group's Joint Ministerial Monitoring Committee (JMMC) — which tracks observance — will meet every month until the end of the year. It will next assemble on 18 June.

Prince Abdulaziz, who chairs the JMMC, indicated that it will not come up with specific numbers for any additional cuts that over-producers would have to implement. He said that the compensatory amounts would be determined by May and June output numbers provided by the secondary sources — of which Argus is one — that Opec uses to determine production numbers.

But the minister said that he would not be tolerant towards non-compliers.

"We have no room whatsoever for lack of conformity," he said. "We have no stomach for any types of laxities in terms of self-imposed obligations that need to be attended to."

The Opec+ agreement comes as Libya — which is exempt from Opec+ output restraints — resumes production at its 300,000 b/d El Sharara field after a five-month shutdown. Prince Abdulaziz said the Opec+ group will consider this development, but that it would be unproductive to engage in discussion about it so soon. He said that the group can accommodate an additional 300,000 b/d.

Indeed, today's message from the Opec+ group was very focused on the short term. Russia's oil minister Alexander Novak said it is too soon to decide whether to amend the output deal following the expiry of the first phase, which is now at the end of July.

"As for August, it is too early to make any forecast. We took a decision about July and we continue to monitor the situation with the recovery of the demand, including air transport, road transport," Novak said. In addition to compliance with quotas, Opec+ will watch "the current market situation, the monitoring of the speed of demand recovery… and stocks, of course" he said, pointing out that global crude stocks rose "significantly" over the past few months.

By Rowena Edwards, Samira Kawar, Nader Itayim and Anastasia Krasinskaya