OPEC+ emphasized the need to stick closely to its planned oil-production cuts to guard against the market recovery being undermined by a resurgence of the coronavirus.
Saudi Energy Minister Prince Abdulaziz bin Salman and his Russian counterpart Alexander Novak hailed the rebound in oil prices and demand, but repeatedly urged their allies in a video conference on Wednesday not to ease off their output curbs.
The draft communique from the meeting called for vigilance as the pace of recovery slows due to the “growing risks of a prolonged second wave of Covid-19.”
Since striking a deal in April to remove about 10% of supply from a global oil market crippled by coronavirus lockdowns, Saudi Arabia has kept up intense pressure on fellow members of the Organization of Petroleum Exporting Countries to fulfill their pledged output reductions.
“Work still needs to be done and I urge you all not to relax the efforts of the past three months,” Prince Abdulaziz said in his opening speech. “We should strive to achieve full adherence to our agreement.”
In the hours before Wednesday’s meeting, Saudi King Salman bin Abdulaziz called Nigerian President Muhammadu Buhari to emphasize the importance of complying with production quotas and compensating for past shortcomings, according to state-run Saudi Press Agency.
Nigeria, Iraq and several other nations have consistently fallen short of their pledges. At Wednesday’s opening session of the OPEC+ Joint Ministerial Monitoring Committee, Russia reinforced the message from the Saudis. The group cannot rest on its laurels and must fully implement its cuts, said Novak.
The coalition of producers is restoring some of the vast quantities of crude halted during the depths of the Covid-19 crisis. From April to July it removed about 9.7 million barrels a day from the market, but started to ease that reduction to about 7.7 million this month.
So far, the supply boost hasn’t derailed oil’s fragile recovery, which has seen prices climb to a five-month high. Brent futures traded near $45 a barrel in London on Wednesday.
But continuation of that trend will depend on maintaining discipline and ensuring that Nigeria, Iraq and other nations fulfill their promises to make amends. Fuel demand and crude-cargo prices have faltered in critical Asian markets, underscoring the fragility of the rebound.
“The Saudis have certainly been holding a consistent and firm position when it comes to compliance,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said before the meeting. “Given that the oil demand recovery is still very uncertain, they understand the importance of delivering the pledged output reductions for the global oil balance.”
Baghdad has stepped up its performance, implementing 85% of its targeted reductions in July, according to OPEC data. It promised to cut an extra 400,000 barrels a day this month and next, on top of the 850,000 barrels it’s already obligated to curb, to make up for earlier non-compliance.
While that is better than in the past, expecting the crisis-torn nation to make extra compensatory cutbacks is probably a “bridge too far,” according to RBC Capital Markets LLC.