The OPEC oil cartel and allied countries on June 6 agreed to a one-month extension of record production cuts, in hopes of stabilizing oil markets hit by a coronavirus-induced economic slowdown.
The 13-member cartel led by Saudi Arabia, and other oil producers, notably Russia, signed off on an extension of output cuts of 9.6 million barrels per day (bpd) in July.
Under the terms of an April agreement, OPEC and the so-called OPEC+ pledged to cut output by 9.7 million bpd in May until the end of June, then gradually reduce production from July to 7.7 million bpd until December.
Benchmark oil prices have recovered to around $40 a barrel as economies gradually emerge from coronavirus lockdowns after an unprecedented price plummet in April that brought oil futures below zero.
The collapse of the oil market was triggered by a supply glut as countries went into lockdowns, combined with a price and market share war between Saudi Arabia and Russia that also threatened U.S. shale producers.
The extension represents a victory for Russia and Saudi Arabia, which have had to pressure reluctant oil producers facing steep revenue cuts and budget holes to cut output.
Saudi Oil Minister Abdulaziz bin Salman, who said he was shocked by the lows in the oil market in April, acknowledged “we all have made sacrifices to make it where we are today.”
“There are encouraging signs we are over the worst,” he said.
Russian Energy Minister Aleksandr Novak similarly called April “the worst month in history” for the global oil market. He said the market “is still in a fragile state and needs support.”
The collapse in oil prices in April prompted the U.S. government to take the unprecedented step of getting involved in OPEC negotiations, pressuring members to make cuts and pledging to make cuts that Mexico wouldn’t make.
Trump on June 5 took credit for the April deal, which helped protect a U.S. shale-oil sector with relatively high production costs and mountains of debt.
“People said that wasn’t possible, but we got Saudi Arabia, Russia, and others to cut back substantially,” he said. “We appreciate that very much.”
U.S. Energy Secretary Dan Brouillette on June 6 welcomed the OPEC+ extension, describing it as an important deal that “comes at a pivotal time as oil demand continues to recover and economies reopen around the world.”
Despite the extension, much uncertainty looms over the future of the oil market as world economies reopen, and questions linger over whether some producers, such as Iraq and Nigeria, will stop cheating on their quotas.