Oil loses steam as Opec+ production pact extension remains unclear

The producers are likely to meet mid-June after full review of compliance data

Saudi Arabia and Russia are reported to be in agreement to roll over current levels of oil production cuts for another month. Reuters

Oil prices lost steam after an Opec+ meeting said to be held today remained uncertain as leaders of the alliance, Saudi Arabia and Russia, push for greater compliance among members.

Brent, the global benchmark, which rose above $40 per barrel for the first time in three months on Wednesday, was down 0.50 per cent at $39.59 per barrel at 4.35pm UAE time. Meanwhile, its US counterpart, the West Texas Intermediate, which also surged to a three-month high on news of the Opec+ meeting and an inventory draw, dropped 1.07 per cent and was trading at $36.89 per barrel.

Oil gave up its gains as Opec+, which is scheduled to meet on June 9-10, is pushing its laggard members to adhere to reductions over the next month as it looks to rollover cuts.

The alliance has been cutting back 9.7 million barrels per day in May and June, with tapered cuts said to remain in place until 2022, according to the terms of a historic agreement reached in April.

Moscow and Riyadh are said to be in consensus to extend the cuts for another month, but would like to press some recalcitrant producers to make up for not complying with their quotas over the last two months.

"Brent and WTI crude are lower on the possibility that the Russian-Saudi agreement on output cuts might not make it over the finishing line,” said Jasper Lawler, research head at the London Capital Group.

Compliance among the group averaged 86 per cent in May, according to Energy Intelligence, with West African producers falling below 50 per cent in cutting back according to their quotas.

Nigeria, a key West African producer, as well as Opec's second-largest producer Iraq, were singled out for lack of compliance, according to reports.

Gulf members of the Opec+ alliance, led by Saudi Arabia are cutting more than their quota as they look to rebalance the markets sooner.

Saudi Arabia is cutting a further 1m bpd of supply from the markets in June, bringing its total output curbs to 4.8m bpd. Production for the month of June for the world's largest oil exporter is expected to average 7.492m bpd.

Kuwait will also cut an additional 80,000 bpd, while the UAE is committed to further reductions of 100,000 bpd.

According to some media reports, core Gulf producers will end the additional voluntary commitments, as they seek push repeat violators of the pact to do their part.

Iraq’s new oil minister Ali Allawi said in a tweet on Tuesday his country is "addressing technical issues that will allow us to further reduce oil output” in spite of severe financial constraints.

"We remain committed to the Opec+ deal, and to doing our part towards ensuring a stable and secure global energy market,” he said.

Baghdad derives around 90 per cent of government revenue from the sale of oil and with a pandemic, it remains challenging for the country to cut back when it needs cash to manage the heath crisis. The oil ministry also finds it difficult to enforce production cuts across fields in the Kurdistan Region of Iraq.

"Reported disunity among Opec producers, as they look to extend deeper cuts, could weigh on oil prices,” Bank of Singapore currency strategist Sim Moh Siong, said.

"Saudi Arabia is looking to delay a decision to extend the May/June quotas until they can receive sufficient assurances from fellow members – Iraq and Nigeria -- to stop free riding and fully comply on quotas,” he added.

The group is set to reschedule its meeting to mid-June to fully assess the compliance data for May.