OPEC+ nations planning to extend production cuts

Saudi Arabia and Russia strike a deal with holdout Iraq.

OPEC+ is set to extend production cuts to prop up the oil market after a breakthrough in high-stakes negotiations, with the alliance meeting today to sign off on the deal.

After almost a week of wrangling, the group’s leaders Russia and Saudi Arabia clinched a tentative deal with holdout member Iraq, according to a delegate. The pair were pushing Baghdad to meet its share of cuts and to compensate for past failures to do so.

The Organization of Petroleum Exporting Countries will meet by video conference today, followed by a conference later in the day with their OPEC+ allies, delegates said.

The agreement, once ratified, will prolong the record OPEC+ production curbs for another month until the end of July, instead of easing them as previously planned. Ministers may review later this month whether a further extension into August is warranted, a delegate said.

The details of the deal between OPEC+ and Iraq on compliance were still not clear on Friday, and the statement from Baghdad didn’t spell out whether they had agreed to compensate for overproduction in May.

The production deal in April set out historic cuts of 9.7 million barrels a day, or roughly 10% of global oil supplies, to offset the unprecedented collapse in demand caused by the virus lockdowns. Then a few weeks later, Saudi Arabia and its closest allies in the Persian Gulf promised additional supply restraint of 1.2 million barrels a day in June.

By accepting stricter terms, the Iraqi government risks a backlash from parliamentarians and rival political parties for acceding to foreign pressure. Still, the Oil Ministry in Baghdad said in a statement on Friday that it will comply in full with pledged OPEC+ cuts despite the country’s difficult financial circumstances.

Mexico, whose resistance to curbing output delayed the April deal, won’t stand in the way this time, the delegate said. Under the terms of that accord, the Latin American country wasn’t expected to make production cuts beyond June.