Oil cartel Opec is set to ease production cuts less than previously expected, it emerged today, in a bid to continue supporting the slowly recovering global economy.
Since May, the wider alliance of Opec members and key players such as Russia have been cutting oil output by 9.7m barrels per day, nearly a tenth of global production, in response to flatlining demand caused by the coronavirus pandemic.
From August to December, the group had been expected to ease back the curbs to 7.7m barrels per day, but Reuters reported that around 8.5m barrels a day will be held back for the next two months.
According to Saudi Arabian oil minister Prince Abdulaziz bin Salman, the cuts will remain deeper than expected because countries which failed to comply with the previous curbs will be forced to compensate.
Documents showed that Russia, Nigeria, Iraq, Angola and Kazakhstan would cut more supply as a result of past failures.
Bin Salman said that the extra supply resulting from the scheduled easing of curbs would be consumed as energy demand around the world picks up as lockdowns lift.
However, in recent days, oil prices have wavered amid fears that the cuts would be eased too far, with a number of countries having reimposed lockdown measures, thus stalling the recovery in demand.
Yesterday Opec said that demand would rebound by 7m barrels a day in 2021, although it would still be lower than pre-coronavirus levels.
The still-fragile market, which has rallied strongly after collapsing to historic lows in April, received a boost when the American Petroleum Institute reported a larger than expected fall in crude stocks.
More than 8m barrels of crude were drawn down from stocks, surprising analysts who had anticipated a 2m barrel drop.
Whether prices continue to head in the right direction depends on Opec members complying with the cuts, a historically contentious area.
Rystad Energy’s senior oil market analyst Paola Rodriguez-Masiu said: “For now, we believe that the oil market is heading to the right direction, with oil prices registering moderate gains.
“But the price recovery is fragile and hinges not only upon avoiding a derailing of the demand recovery, but also OPEC+ adherence to quotas as they slowly ramp-up output in August”.