Push for more cuts sends oil close to $40 a barrel

Marco Green
June 3, 2020

Both crude benchmarks consolidate the upside, with WTI reversing the rally above 38.00 while Brent defends the 40 level.

"A consensus is emerging that the producer group will prolong current cuts", said Stephen Brennock of oil broker PVM, referring to Opec and its allies.

Russian Federation and Saudi Arabia are inching closer to a deal which will keep production low as much of the world slowly emerges from lockdown.

Oil rose on Wednesday, with Brent above $40 for the first time since March, as optimism mounted that major producers will extend output cuts and a recovery from the coronavirus pandemic will spur fuel demand. And at about $40 a barrel, prices are still below what most OPEC+ members need to cover government spending.

Friction has emerged between Russian Federation and Saudi Arabia, the two countries responsible for triggering a price war in March that along with the pandemic sent oil prices crashing.

"It is the proposal now, but it is yet to be finalised", one OPEC+ source said of the one to two-month extension.

The group is likely to hold an online meeting on June 4 to discuss output policy, after Algeria, which now holds the presidency of OPEC, proposed a meeting planned for June 9-10 be brought forward. But there has been no agreement yet on bringing forward a ministerial meeting to Thursday from later in June as now scheduled. That's within the range of Saudi Arabia's call for a one to three-month elongation. "Despite Iraq's severe financial constraints, we're addressing technical issues that will allow us to further reduce oil output", he said. 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.

Under the current deal, agreed in April, a reduction of 9.7m barrels a day - about a tenth of global production - will fall to 8m from July 1. Saudi Arabia, Kuwait and the United Arab Emirates then made further voluntary cuts of about 1.2 million barrels a day for June, bringing the total OPEC+ curbs to nearly 11 million barrels a day.

According to latest media reports, OPEC+ is now preparing to keep its output cuts of 9.7 million barrels until the end of July, before easing up.

Other reports by Click Lancashire

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