Saudi Arabia and Russia, the leading producers in the OPEC+ alliance, have reached a preliminary agreement to extend the current level of output cut of 9.7 million barrels per day by an additional month.
The agreement was reached on the condition that member countries, led by Iraq and Nigeria, who failed to comply with the agreed output cut for May, must ensure over-compliance going forward in order to make up for the non-compliance of their allocated quotas.
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The alliance, which helped to revive global oil markets, was earlier troubled by disagreement among members after the likes of Nigeria broke their promises. The Russians and Saudis have, therefore, warned that they will start phasing out supply cuts if the likes of Iraq, Nigeria, and even Kazakhstan do not shape up and conform to the earlier agreement.
The two leading oil producers in the cartel are not just demanding that these non-compliant member countries implement the output cuts already promised, but also want deeper output cuts in the coming months to make up for their earlier failings.
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According to the initial agreement reached in April, OPEC+ was to cut 9.7 million barrels per day in combined production for May and June and then ease these to 7.7 million barrels per day until the end of the year. From January 2021, the production cuts would be further eased to 5.8 million barrels per day, to remain in effect until the end of April 2022.
Meanwhile, despite the non-compliance by some OPEC member countries in May, the market expected that the OPEC+ coalition would be motivated enough to extend the current output cut of 9.7 million barrels per day through July/August.
It had been speculated that the OPEC+ cartel could hold its June meeting earlier than initially planned. However, the meeting is being held up by the fact that Saudi Arabia and Russia will be requiring assurances from non-compliant members that they will over-comply going forward, as a form of compensation. These members are Iraq and Nigeria from OPEC and Kazakhstan from non-OPEC.