Saudi Arabia to End Extra Voluntary Oil Cuts After June

Wednesday, 10 Jun, 2020

Brent price has almost doubled since major crude producers signed the historic oil accord.

WTI defends $38.00 but remains below Monday's low of $40.44.

Oil has doubled since April as Opec+ cuts trimmed a global glut and demand staged a rebound after the easing of restrictions in some countries, particularly China.

There was a weekend announcement by OPEC and its allies, known as OPEC+, that unprecedented production cuts of 9.6 million barrels per day throughout the group would proceed through July with the coronavirus pandemic dragging down demand.

The energy minister of OPEC's de facto leader Saudi Arabia, Abdulaziz bin Salman, and the energy minister of non-OPEC, Russia's Energy Minister Alexander Novak and OPEC Secretary-General Mohammad Barkindo will hold a virtual press conference on Monday at 1000 GMT.

"When you have Brent approaching $40, it is a good sign", one OPEC delegate said. Given the lack of crude oil demand by Indian refiners, it is estimated that daily imports of crude oil will fall to 4.14 million barrels in FY21 from 4.5 million barrels per day in FY20, said a report by Care Ratings.

"The production adjustments in May, as well as the gradual relaxation of numerous lockdown measures as a result of the Covid-19 pandemic across the globe and an economic pick-up, had contributed to a cautious recovery and the return of more stability in the oil market", the statement said.

Libya's supply could also rise soon as two major oilfields have reopened after months of a blockade that shut off most of the country's production.

Putting additional pressure on black gold was ramp-up in output from United States shale producers, refusal by Mexico to adhere to production and easing supply concerns relating to Libya amid peace talks, undercut the optimism.

"The potential return of Libyan output could also cause considerable challenges for the OPEC leadership, " said Helima Croft, Head of Global Commodity Strategy at RBC Capital Markets. Following the meeting, OPEC's largest producer sharply hiked its official selling prices.

Also, cheap oil prices in the worldwide market are further expected add to the benefits.

"The issue of compliance is a major fault line in OPEC+ now", said Vandana Hari, founder of energy consultancy Vanda Insights in Singapore.

"The resumption of output ... may moderate the pace of rebalancing of the oil market".