Oil Prices Rally following OPEC+ Deal
Oil prices gained more than $10 in May as OPEC member states and their partners started removing 9.7 mb/d from their total output in a bid to help shore up prices following low demand due to the coronavirus outbreak.
On average, the 13-member Organization of the Petroleum Exporting Countries (OPEC) pumped 24.77 mb/d this month, down 5.91 mb/d from April’s revised figure.
In May, they delivered 4.48 mb/d of the pledged reduction, equal to 74% compliance.
Deal Effective
OPEC and its non-OPEC allies, known as OPEC+, agreed to cut supply by a record 9.7 mb/d from May 1. OPEC’s share, to be made by 10 members from their October 2018 output in most cases, is 6.084 mb/d.
May’s output would be the lowest by OPEC since 2002, excluding membership changes since then, Reuters survey records show. The biggest drop in supply came from Saudi Arabia, which pumped a record 11.7 mb/d in April.
United Arab Emirates and Kuwait also cut back sharply, sources in the survey said. Both had also pumped at record rates in April.
Iraq, a laggard in making cuts in 2019, curbed output according to the survey following reduced exports from the south of the country, although at 38% its compliance was much lower than that of the Persian Gulf OPEC members.
Another laggard, Nigeria, made only 19% of its promised reduction, the survey found.
Venezuela and Iran reduced output in May, while Libyan supply rate was steady. All three were exempt from voluntary cuts because of US sanctions or internal issues limiting production.
Trump, Saudi King Discuss Oil
U.S. President Donald Trump and Saudi Arabia’s King Salman spoke on the phone on May 8 and "reaffirmed the strong United States-Saudi defense partnership," the White House said, amid tensions over Saudi’s oil output.
"The two leaders agreed on the importance of stability in global energy markets, and reaffirmed the strong United States-Saudi defense partnership. The president and King Salman also discussed other critical regional and bilateral issues and their cooperation as leaders of the G7 and G20, respectively," said White House spokesman Judd Deere.
Saudi Thirst
Saudi Arabia along with Kuwait and the United Arab Emirates increased their production in March, causing a sharp decline in oil prices. According to OPEC’s monthly review, the trio added more than 2 mb/d to their April output. Saudi Arabia accounted for 1mb/d, UAE for 100,000 b/d and Kuwait for 80,000 b/d. The Saudi government also called on fellow OPEC members, as well as non-OPEC partners to further reduce their production.
Putin, MBS Talk
Russia and Saudi Arabia agreed on May 28 to closely coordinate on the OPEC+ output cuts deal, two weeks ahead of a crucial meeting of the group.
The talks between President Vladimir Putin and Saudi Crown Prince Mohammed Bin Salman come as Russia was said to be determined to start easing oil-output cuts in July, as agreed by OPEC+ in April.
Kremlin spokesman Dmitry Peskov said that Russia would analyze the global oil market before deciding on any potential changes in the OPEC+ agreement.
Putin and Bin Salman exchanged views about the situation in the world energy market, the Kremlin said in a statement. They “noted the importance of joint efforts” and agreed the nations’ energy ministries would closely coordinate.
Russia Fulfills Pledge
Russia reached the output level pledged by the world's largest oil producing countries, also known as the OPEC+ alliance, as the country reduced its oil production by 2 mb/d.
"The OPEC+ deal worked out and Russia has achieved the targeted indicator we agreed on, which is 2 million barrels of reduction per day," Russia's Energy Minister Alexander Novak was quoted as saying by a source with knowledge of his speech delivered at a State Council meeting.
Due to output cuts in other countries, global oil supply has already dropped by 14 to 15 mb/d so far, said Novak, expressing his expectations to see global crude demand and supply balancing out in the next two months.
"The OPEC + deal allowed us to reduce production evenly across all countries in a regulated way, if there weren’t a deal, the reduction in demand would not go away, a chaotic slump in demand would affect Russia," TASS quoted the minister as saying.
US Rig Count Still in Freefall
The U.S. rig count was down 17 rigs in a week to 301, with oil rigs down 15 to 222, gas rigs down 2 at 77, and miscellaneous rigs flat at two, according to current data from Baker Hughes.
Year on year, the U.S. rig count is down 683 rigs from last year’s 984, with oil rigs down 578, gas rigs down 107, and miscellaneous rigs up to two.
The U.S. Offshore Rig Count is flat at 12 and down 11 year-over-year, according to Baker Hughes.
Meanwhile, in Canada the rig count dropped one rig to 20, with oil rigs down one to seven and gas rigs flat at 13. The region is down 65 rigs from last year’s 85, with oil rigs down 37 and gas rigs down 28.
Oil Prices Rally
Oil posted its biggest monthly advance on record, just a few weeks after prices made a dramatic plunge below zero.
Crude surged about 88 per cent in May, with U.S. futures rising above US$35 a barrel for the first time since March, driven by massive supply curbs by producers across the world. Still, prices are well below levels at the beginning of the year, and demand that was crushed by the coronavirus crisis may need to show a sustained improvement for the rally to extend further.
OPEC, Russia Agree
OPEC, Russia and allies agreed to extend record oil production cuts until the end of July, prolonging a deal that has helped crude prices double in the past two months by withdrawing almost 10% of global supplies from the market.
The group, known as OPEC+, also demanded countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.
OPEC+ had initially agreed in April to cut supply by 9.7 mb/d during May-June to prop up prices that collapsed due to the coronavirus crisis. Those cuts were due to taper to 7.7 mb/d from July to December.