Crude oil futures rise amid optimism of OPEC+ compliance

Singapore — Crude oil futures were higher during mid-morning trade in Asia on June 8 even as Iraq reported crude production figures above its OPEC+ quota in May, a day after it agrees to compensate for under-compliance.

At 10:59 am Singapore time, ICE Brent August crude futures was 51 cents/b (1.2%) higher from the settle on June 5 at $42.81/b, while the NYMEX July light sweet crude contract was 31 cents/b lower (0.8%) at $39.86/b.

Iraq on June 7 reported its May crude oil production was 4.213 million b/d, well above its OPEC+ quota of 3.592 million b/d for May and June as agreed under the historic production cuts by OPEC and its allies, led by Russia. Iraq's exports for May were 3.633 million b/d, Iraq's state-owned marketing company SOMO said in a statement. The output and export figures include federal Iraq and the semi-autonomous northern Kurdistan Regional Government.

The report came a day after the OPEC+ alliance approved a one-month rollover of their now 9.6 million b/d production cut accord, putting aside Mexico's defection from the pact, and receiving pledges of improved compliance from Iraq, Nigeria, Angola and Kazakhstan.

The cuts -- originally 9.7 million b/d including Mexico -- had been scheduled to taper to 7.7 million b/d in July through the rest of the year.

"Pressure from Russia and Saudi Arabia has led Iraq to agree not only to comply rapidly with targeted production cuts but to compensate for under-compliance last month. This is hugely positive for sentiment as the presumption is this clampdown will accelerate the rebalancing of supply and demand," AxiCorp's chief global markets strategist Stephen Innes said in a June 8 note.

"The recognition that the deep cuts need to continue for a month or perhaps longer shows that despite the recent surge in oil prices, the large producers remain worried about the fragile state of the oil markets," he added.

Following the OPEC+ agreement on June 6, Saudi Aramco on June 7 hiked its July crude export official selling prices across the board, for all regions and grades.

The Saudi oil giant, whose monthly pricing is one of the most closely watched data points on the global market, had delayed the release of its OSPs pending the outcome of the July 6 OPEC+ meeting.

"The recent one-month rollover of OPEC+ cut did not reveal that Saudi Arabia would extend the 1 million b/d of unilateral cuts into July. That means Saudi Arabia's potentially exportable crude volumes will likely rise to 5.8 million b/d, despite the OSP increase," S&P Global Platts Analytics wrote in their June 7 report. They had estimated that Saudi Arabia will cut crude exports further to 5.0-5.5 million b/d in June after volunteering the additional cuts on top of its OPEC+ quota.

"Yet given the uncertainty of demand recovery, along with crude buying and price volatility, actual crude exports in July could be lower than that. Even so, there is cushion between their agreed to quota and their current production, and thus will be able to provide additional export volumes without breaking compliance with the agreement," they wrote.