Saudi Arabia's energy minister Abdulaziz bin Salman Al-Saud at Opec's headquarters in Vienna, Austria. Picture: REUTERS/LEONHARD FOEGER
Saudi Arabia's energy minister Abdulaziz bin Salman Al-Saud at Opec's headquarters in Vienna, Austria. Picture: REUTERS/LEONHARD FOEGER

Oil cartel Opec+ and its allies will restore some oil supplies in August, but the impact will be “barely felt” as demand recovers from the coronavirus crisis, Saudi Arabia’s energy minister said on Wednesday.

After almost three months of historic output curbs to offset the worst effects of the global pandemic, the 23-nation coalition led by Riyadh and Moscow will proceed with its plan to gradually taper the reductions. The decision was widely expected but still carries some risks for the cartel after a resurgence of the virus in the US, the world’s largest oil consumer.

Brent crude rose 14c, or 0.3%, at $43.04 a barrel, and US West Texas Intermediate crude rose 13c, or 0.3%, to $40.42 a barrel in New York.

“As we move to the next phase of the agreement, the extra supply resulting from the scheduled easing of production cuts will be consumed as demand continues on its recovery path,” Saudi energy minister Abdulaziz bin Salman said at the start of an Opec+ video conference on Wednesday. “Economies about the world are opening up, though this is a cautious and gradual process. The recovery signs are unmistakable.”

The cartel and its allies will withhold 7.7-million barrels a day from the market in August, compared with cuts of 9.6-million now. The group’s two largest members, Russian and Saudi Arabia, publicly backed the move, and other ministers participating in the video conference had agreed in principle, delegates said.

That supply increase will be offset somewhat by members that did not fulfil their commitments to reduce output in May and June — such as Iraq and Nigeria. They will make up for those shortcomings with 842,000 barrels a day of extra reductions in August and September, delegates said.

On paper, full delivery of the compensation cuts could shrink the 2-million barrels a day supply increase scheduled for August by almost half. However, it is unclear how much of the reparations will actually be delivered by countries that have consistently failed to fulfil their pledges.

Abdulaziz, who has made it his mission to end the quota cheating that has dogged Opec+ since its inception in 2016, said these compensation cuts are a crucial principle and the group must resist the temptation to relax.

Opec+ is reviving supplies as fuel consumption picks up with the lifting of lockdowns about the world. The alliance’s curbs, equivalent to about 10% of global supply, helped more than double crude prices from the lows hit in late April, when demand plunged by more than 20-million barrels a day.

The tapering of production cuts is “fully in line with the current market trends”, said Russian energy minister Alexander Novak. “Almost all of the output hikes will be consumed in domestic markets of the producing countries as the demand is recovering.”

Saudi Arabia’s own exports will not change in August, despite the output increase, as domestic demand rises, said Abdulaziz.

“Nobody could really expect Opec+ to keep the 9.7-million bpd curtailments into August,” Paola Rodriguez-Masiu, senior oil markets analyst at consultant Rystad, said by e-mail. “Boosting output by 2-million bpd is not little, but the demand recovery, even though a little slower than expected, justifies it.”

Bloomberg

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