OPEC+ oil cut extension talks complicated by Saudi and Russia haggling

London — Saudi Arabia and Russia appear at loggerheads over an extension to the historic output cut agreement by the so called OPEC+ alliance, just days before the producer coalition is due to hold its much anticipated meeting, according to people involved in the discussions.

The kingdom has proposed a three-month extension of the 9.7 million b/d cut accord, while Russia -- the key non-OPEC partner in the deal -- has countered with one month.

The cuts otherwise are set to be scaled back to 7.7 million b/d starting in July for the rest of 2020.

OPEC+ is scheduled to meet June 9-10 via webinar, but Algerian energy minister Mohamed Arkab -- who holds OPEC's rotating presidency for 2020 -- has proposed moving the gathering forward to June 4 to help members determine July export volumes.

"I hope there will be an agreement on at least a 1-2 month extension," one delegate said, asking not to be named due to the sensitivity of the talks. "Otherwise, there's no sense to have the [earlier] meeting."

The production cut accord, forged in April after days of acrimonious talks with oil prices crashing, is aimed at bolstering the market against the steep decline in demand caused by the COVID-19 pandemic.

The alliance scheduled its biggest cuts -- the largest coordinated supply restrictions in the oil market's history -- for May and June, when they figured the worst of the pandemic's effects would be felt.

Prices have rebounded but are still far below desirable levels for many OPEC+ members, and with the global economy only just starting to recover, many members are pushing to maintain the deeper cuts.

OPEC Secretary General Mohammed Barkindo said June 2 in a commentary posted on the bloc's website that the production cuts so far have prevented a build in global crude oil inventories of some 1.3 billion barrels.

"To navigate the choppy waters that are yet to come as the industry traverses this ocean of volatility, every single industry stakeholder will need to do its part to contribute to this staggering recovery effort," the commentary stated.

Eye on compliance

Whatever the date of the meeting and its result, compliance will be key to the deal's credibility. The six secondary sources used by OPEC to monitor output, including S&P Global Platts, have yet to report May production figures and are unlikely to do so before a June 4 meeting.

Several delegates have cited the lack of compliance data as reasons not to move the meeting forward. Preliminary production and export reports by some countries have indicated uneven performance.

Russia -- the largest non-OPEC participant in the deal -- on June 2 said it pumped 8.59 million b/d in May, exceeding its quota by 100,000 b/d. Still that is the closest Russia has come to meeting its commitment under OPEC+ agreements in several months.

Iraq -- which has also habitually lagged on compliance in previous OPEC+ deals -- on June 1 revealed May crude exports of 3.58 million b/d, just 12,000 b/d below its production quota. This means Iraq will breach its quota by nearly the amount of its internal consumption, which is expected to be around 550,000 b/d, according to sources familiar with the matter.

Iraq's interim oil minister, Ali Allawi, on June 2 cited "technical issues" for his country's failure to cut output down to its agreed cap.

"We remain committed to the OPEC+ deal, and to doing our part towards ensuring a stable and secure global energy market," he said on Twitter.