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LONDON/MOSCOW/DUBAI: Saudi Arabia and some other OPEC oil producers are considering extending record high output cuts until the end of 2020 but have yet to win support from Russia, according to OPEC+ and Russian industry sources.
The Organization of the Petroleum Exporting Countries and other producers led by Russia, a group known as OPEC+, agreed last month to cut output by 9.7 million barrels per day (bpd) in May and June.
The coronavirus pandemic has worsened oversupply in the oil market by slashing demand which has in turn hammered prices. So instead of easing their output cuts come July, several OPEC+ sources told Reuters there are discussions led by de facto OPEC leader Saudi Arabia about sustaining those cuts.
“The Saudis see that the market still needs support and want to roll over the same cuts until end of the year. The Russians also want the same but the problem again is with the oil companies,” one OPEC+ source said.
Russian Energy Minister Alexander Novak met with domestic major oil companies on Tuesday to discuss the possible extension of the current level of cuts beyond June. Sources familiar with Russian oil thinking said no decision was made as opinions are divided, with some arguing Moscow should wait to see demand levels as airlines begin to fly again.
“Of course if we are told to continue with the cuts, we will obey. But if the demand is OK, we don’t see a reason to change the deal,” said one source at a Russian oil company, referring to the current pact calling for cuts through June.
Russia’s Novak had said he expected the oil market to balance out in June/July as oil demand recovers amid easing lockdowns. The Russian source agreed with that assessment, which may show that Moscow sees no need for changes to the current deal.
Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman agreed during a telephone call on further “close coordination” on oil output restrictions, the Kremlin said on Wednesday. The OPEC+ group is due to hold an online conference in the second week of June to discuss their output policy.