The Opec+ group meets today to discuss a proposal to extend its record 9.7mn b/d production cut beyond this month. The plan, which hinges on countries that overproduced last month agreeing to compensate for their non-compliance, may face opposition from some members.
Opec+ agreed in April to remove 9.7mn b/d of crude from the market in May and June, and then moderate the cut to 7.7mn b/d in the second half of the year, largely from an October 2018 baseline. But the prolonged oil price downturn has prompted the group's kingpins Saudi Arabia and Russia to back a proposal to extend the 9.7mn b/d cut by one month, with the possibility of a further extension.
The proposal depends on compliance assurances from member countries which overproduced in May as well as "a compensation mechanism" to address non-compliance, one Opec delegate said.
Opec's second-largest producer Iraq has long struggled with compliance, meeting just 52pc of its pledged cut in May, according to Argus estimates. Production cuts and low oil prices have crippled Iraq's finances. But Baghdad has said it will back the proposal to extend current quotas. Iraq's finance minister and acting oil minister Ali Allawi said Iraq will "address technical issues" to allow a further reduction in oil output.
Nigeria has also struggled with compliance since joining the Opec+ agreement in December 2018, with Argus estimating that it met just 60pc of its reduction target last month. Nigeria expects opposition to the rollover proposal by "one or two member countries", oil minister Timipre Sylva said today.
"Nigeria reconfirms our commitment under the existing agreement, subscribes to the concept of compensation by countries who are unable to attain full conformity in May and June to accommodate it in July, August and September," the Nigerian oil ministry said.
Mexico has stated it will not agree to deepen or extend its current oil production cut. The country took centre stage during Opec+ talks in early April by resisting calls to reduce its output by up to 400,000 b/d. Fellow Opec+ members allowed Mexico to reduce its cut to 100,000 b/d in May and June in order to push the deal through.
The 20 countries participating in the Opec+ deal fell just 1.1mn b/d short of their 9.7mn b/d target last month, according to Argus estimates.
Opec ministers will gather via video conference at 12:00 GMT. The wider Opec+ group will hold its meeting immediately after that at 14:00 GMT.
