ALEXANDRIA, Va.—An alliance of crude producers led by Saudi Arabia has agreed to increase oil production starting in August amid signs that demand for oil is recovering after COVID lockdowns, according to the Wall Street Journal.
As NACS Daily reported, key members of the Organization of the Petroleum Exporting Countries and its Russia-led allies met last week to discuss oil production caps and agreed to loosen existing production caps by about 1.6 million barrels a day. That decision partly reverses the severe cuts enacted to stem a sharp price decline early in the coronavirus pandemic, and it helped push Brent oil prices up 43 cents, or 1%, to $43.3 a barrel.
Officially, the group agreed to an overall relaxation of cuts of two million barrels a day of production but required some countries that lagged in enforcing earlier cuts to reduce their output by a net 400,000 barrels a day. Those cuts will be required until the end of October.
On Friday, the International Energy Agency reported that the worst effects of the coronavirus on global oil demand have passed but will continue to echo as the market slowly recovers in the second half of 2020. In its monthly report, OPEC itself said it expected that the world’s demand for oil would increase by seven million barrels a day next year.
The world’s largest oil producers are attempting to mop up an oil glut and stabilize prices. West Texas Intermediate futures, the benchmark in U.S. oil markets, have traded at around $40 a barrel since late June after briefly falling below zero in April.
Experts said the easing of reductions remained a risky bet. “Some of the more errant producers could use the easing as an excuse to revert to past practice, and overall group compliance levels could erode,” said Helima Croft, chief commodities strategist at Canadian broker RBC. “Given the financial distress facing many OPEC producers in a $40 [per barrel] Brent environment, the margin for error appears rather slim in our view.”