Oil Price Fundamental Daily Forecast – OPEC+ to Meet Saturday on Extending Cuts; Demanding High Compliance

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading at their highest levels of the week on Friday after a report said OPEC and its allies led by Russia would meet on Saturday to discuss extending record oil production cuts and to approve a new approach that aims to force laggards such as Iraq and Nigeria to comply better with the existing curbs.

At 09:19 GMT, July WTI crude oil is trading $38.15, up $0.74 or +1.95% and August Brent crude oil is at $41.05, up $1.06 or +2.65%.

The producers known as OPEC+ previously agreed to cut supply by 9.7 million barrels per day (bpd) during May and June to prop up prices which collapsed due to the coronavirus crisis. Cuts have been due to taper to 7.7 million bpd from July to December, Reuters reported.

Two OPEC+ sources said Saudi Arabia and Russia had agreed to extend the deeper cuts until the end of July but they said Riyadh was also pushing to extend them until the end of August.

OPEC+ Meeting Agenda

Saturday’s meetings would start with talks between members of the Organization of the Petroleum Exporting Countries and be followed by a gathering of the OPEC+ group, an OPEC+ source said, after Algerian and Russian media reported the meetings, Reuters reported.

Three OPEC sources said an extension to cuts was contingent on high compliance and countries that produced above quota in May and June must promise to adhere to targets and agree to compensate for any earlier overproduction by cutting more in July, August and September.

Iraq, which had one of the worst compliance rates in May according to a Reuters survey of OPEC production, agreed to the additional pledge, OPEC sources said.

Daily Outlook

The news is promising for an extension and buyers are responding accordingly. The size and duration of the expected output cuts should be the next market moving news.

Traders may be pricing in a one-month extension so the announcement of production cuts extending into August or September could spike prices higher.

The other good news is that Iraq, which had one of the worst compliance rates in May according to a Reuters survey of OPEC production, agreed to the additional pledge, OPEC sources said.

“The Saudis have been pushing Baghdad hard to comply,” one OPEC+ source said. “Iraq has agreed to the pledge to improve its full compliance with the cuts.”

Baghdad blamed technical reasons and a recent change in its government for weak compliance in May, another OPEC source said.

For a look at all of today’s economic events, check out our economic calendar.