The Organization of the Petroleum Exporting Countries (OPEC) plus Russia that forms the OPEC+ group is easing the record 9.7-million-bpd production cuts as of August as demand has started to recover, Saudi Arabia's Energy Minister, Prince Abdulaziz Bin Salman, said at an OPEC+ panel meeting on Wednesday, according to the Oilprice.com report. "As we move to the next phase of the agreement the extra supply resulting from the scheduled easing of production cut will be consumed as demand continue on its recovery path," the Saudi minister said, as carried by Reuters. The Joint Ministerial Monitoring Committee (JMMC) of the OPEC+ group met on Wednesday to decide how to proceed with the cuts. OPEC+, led by OPEC's top producer Saudi Arabia and by Russia, agreed in June to extend the record production cuts of 9.7 million bpd by one month through the end of July. According to the original agreement from April, OPEC+ was to cut 9.7 million bpd in combined production for two months — May and June — and then ease these to 7.7 million bpd, to stay in effect until the end of the year. Then, from January 2021, the production cuts would be further eased to 5.8 million bpd, to remain in effect until end-April 2022. There won't be another extension of the record 9.7-million-bpd cut, according to the OPEC+ panel meeting Wednesday. The oil producers part of the pact will ease the cuts to 7.7 million bpd, but the cuts would actually be deeper than that because of the mechanism for laggards to compensate for their loose compliance in May and June, the Saudi energy minister said. The opening of the taps is also good news for refiners, which have been struggling with high heavy/medium crude premiums. As OPEC+ ramp-ups production, we expect the light to heavy differential to shrink. This will, in turn, help to improve refining margins and support higher runs, Rystad Energy's Senior Oil Markets Analyst Paola Rodriguez-Masiu said. Saudi Arabia will keep its August oil exports at the same level as in July, Prince Abdulaziz said, confirming earlier reports that the Kingdom would not be rushing to boost its supply to the market. Masiu commented on the OPEC+ move, by saying: "The day everyone expected is here, but today's developments are not likely to keep surprises for the market like in previous meetings. OPEC+ had taken the burden of saving the oil price and has previously taken a further step to expand deep cuts it painfully agreed on. "But with oil prices stabilizing at more livable levels around 40 dollars, the alliance cannot see shut-in production being reactivated elsewhere on its expense." Masiu agreed that the demand recovery justifies the group's move to ease cuts. She said: "Nobody could really expect OPEC+ to keep the 9.7 million bpd curtailments into August. Boosting output by 2 million bpd is not little, but the demand recovery, even though a little slower than expected, justifies it. "The alliance hinted this early today and more interesting is the compliance rate for tradable news. And compliance seems much higher than most expected, thus the oil price gains today. Supported of course by crude stocks relief in the US." "However, even as OPEC+ increases production by about 2 million bpd, we see crude balances displaying a prolonged period of deficits for the rest of 2020. "Look out for comments by officials today on how they see COVID-19 surging in the Americas and other key markets. Developments there could determine the direction of future OPEC+ meetings and how they may react to a second wave of the pandemic," Masiu added. "For now producers have to produce and the alliance leaders will sleep a bit more relieved today, seeing soon more production coming out of their taps. Their economies have suffered from the lost revenues and bringing extra cash back to their budgets will also help them domestically, Masiu stated. — Agencies
