(Bloomberg) -- Saudi Arabia’s extra voluntary oil-production cut, which came on top of the OPEC+ supply curbs, will cease at the end of this month as demand recovers.
Crude prices erased gains as Energy Minister Prince Abdulaziz bin Salman said the kingdom’s additional reductions, which amounted to about 1.2 million barrels a day including contributions from its closest allies in the Persian Gulf, will only take effect in June as planned.
That means the cartel’s total supply reduction this month of almost 11 million barrels a day will taper gradually in the coming months.
“The voluntary cuts served their purpose and we are moving on,” Prince Abdulaziz said in a press briefing on Monday.
Brent crude, the international benchmark, fell 2.5% to $41.23 a barrel at 4:29 p.m. in London, erasing earlier gains. Prices were also pushed lower by the restart of a second oil field in Libya, which is an OPEC member but exempt from making supply cuts.
Saudi Arabia and Russia led the Organization of Petroleum Exporting Countries and its allies in a one-month extension of record production cuts over the weekend. The group will now withhold 9.6 million barrels a day from the market in July, instead of easing the reduction to 7.7 million as previously planned.
The confirmation that the voluntary cuts will end follows a big increase in official selling prices for the kingdom’s crude. Prince Abdulaziz described that as a clear indicator of stronger oil consumption.
Market Vigilance
Oil prices have rallied from historic lows since April, when OPEC+ ended a vicious price war and agreed to cuts on a record scale. With a tentative recovery in fuel demand as the world emerges from the coronavirus lockdown, the cartel must now decide how long to maintain tight limits on output.
Fears of a second wave of infections make predictions of a recovery perilous. And at about $41 a barrel, prices are still below what most OPEC+ members need to cover government spending.
The group will remain vigilant and proactive, with ministers meeting every month to discuss the oil market, Prince Abdulaziz said.
The new deal agreed over the weekend put particular focus on ending the habitual cheating on output quotas by nations including Iraq and Nigeria. Every country pledged to implement 100% of its cuts in July and make additional curbs in August and September to compensate for missing their targets in May or June.
When asked how this would be enforced, Prince Abdulaziz said every member would police itself. The minister declined to comment on what would happen if some nations continue to flout their production targets, saying he didn’t want to discuss hypothetical situations.
“OPEC+ is about self-imposed discipline,” he said. “You have no meaningful way other than taking a commitment from a sovereign country” to enforce the agreed cuts.
--With assistance from Anthony Di Paola.
To contact the reporters on this story:
Javier Blas in London at jblas3@bloomberg.net;
Salma El Wardany in Cairo at selwardany@bloomberg.net;
Dina Khrennikova in Moscow at dkhrennikova@bloomberg.net
To contact the editors responsible for this story:
James Herron at jherron9@bloomberg.net
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