The Strategist

OPEC+ extends the deal for another month

06/08/2020 - 05:42

OPEC + countries extended the agreement on limiting oil production on previous terms for one more month. According to the agreements, from July they will comply with the production limit of 9.6 million barrels per day, which is slightly less than in May-June, since Mexico has not yet agreed to extend the deal. On the eve of the meeting, the parties to the agreement tried to make sure that they were committed to the deal between Iraq and Nigeria, which did not fully comply with their quotas.

The ministers of OPEC+ countries agreed to keep the current agreement to reduce production. In May-June, the parties to the agreement adhered to a total quota of 9.7 million bps, and, by initial agreement, this quota was supposed to be reduced by 2 million bps from the beginning of July. Now in July, the quota will be maintained, albeit at a slightly smaller amount - 9.6 million bps, since Mexico has not yet agreed to extend the deal, and its quota of 100 thousand bps has not yet been taken into account.

As indicated in the draft, the decision to reduce production will be valid provided that “the principle of compensation is observed by countries that were not able to fulfill the agreement by 100% in May and June, assuming the necessary adjustment of production in July, August and September 2020 in addition to their agreed quotas for these months.”

On the eve, the parties to the agreement discussed the issue of quota violations by a number of countries, in particular Iraq and Nigeria, but they promised to compensate for the insufficient reduction in production.

Recall that according to the deal concluded in April, OPEC + went for the largest production decline in history. Already in July, Russia and OPEC countries were supposed to weaken the conditions. Instead, at the suggestion of Saudi Arabia, the parties to the deal retained reduction quotas.