Brent crude prices dropped on Thursday morning, reversing the gains recorded yesterday, on reports that supply will rise if major crude oil producers fail to reach an agreement on crude oil output cuts that have helped in stabilizing crude oil prices since the start of COVID-19.
Brent crude lost 1.14 %, to trade at $39.38 a barrel at 3:40 am Nigerian time, failing to stay over the $40 resistance price level.
OPEC members such as Nigeria and Iraq have shown weak compliance in meeting their crude oil production reduction targets set last month.
“Overall, the market is moving in the right direction with the gradual easing of the lockdown. But we still need to be cautious. There is always a risk of another wave of the coronavirus,” the first OPEC source said.
“The other thing is how quickly demand patterns will recover. Inventories are still above average levels and that needs to be tackled.”
OPEC+ had initially agreed to reduce crude oil production by a record 9.7 million barrels per day, or about 10% of global production of crude oil, for the month of May and June in order to minimize the damage caused by COVID-19 pandemic in weakening global demand for crude oil.
Meanwhile, OPEC+ private sources reportedly told Reuters that Saudi Arabia and Russia have agreed on a precursory deal to extend oil production cuts by one month while putting pressure on countries with poor compliance such as Nigeria and Iraq to deepen their oil production cuts.
What you should know about OPEC+: OPEC + came into light in late 2016 as a means for major oil-exporting countries to exercise their control over crude oil prices. Essentially, OPEC+ is an amalgamation of OPEC (Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, Venezuela) and high oil-exporting non-OPEC countries like Mexico, Oman, South Sudan, Kazakhstan, and Russia.
Rather than reducing crude oil production cuts in July, OPEC+ was deliberating on keeping those cuts beyond June.
“Saudi Arabia and Russia are aligned on the extension for one month,” one OPEC source said.
“Any agreement on extending the cuts is conditional on countries who have not fully complied in May deepening their cuts in upcoming months to offset their overproduction,” the private source told Reuters.
“I don’t think there will be a meeting on Thursday. There are still many challenges,” another OPEC source added.