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Crude ticks lower as OPEC+ agrees to ease production cuts from Aug

London — Crude oil prices slid lower during the European morning session on July 16, after OPEC+ agreed to curb the production cuts from August, even as uncertainty over the near-term demand outlook lingered.

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At 0947 GMT, ICE Brent September crude futures were 33 cents lower than the previous settle at $43.46/b while the NYMEX light sweet August crude contract was down 44 cents at $40.76/b.

The OPEC+ coalition has agreed to roll back production cuts to 7.7 million b/d in August through to the end of the year after enacting a 9.7 million b/d production cut from May in response to the coronavirus crisis.

"Despite supply edging higher, the market will remain in deficit, allowing it to draw down inventories," head of commodities strategy at ING, Warren Patterson said. "If you factor in compensatory cuts from a handful of producers who fell short of the deal over May and June, theoretically the easing will not be as significant."

Views on its impacts are mixed after increased supply to the market raised several questions.

"Though OPEC+ appears to have the market under control at present, some questions do remain: will production discipline be maintained at a high level?" said Eugen Weinberg, head of commodity research at Commerzbank, in a note.

"Will the stragglers actually implement their promised cuts? How quickly will the cartel be able to react if the demand outlook worsens again?"

Overall compliance to the production cuts was strong from May at 98% of OPEC member and 96% for 10 non-OPEC partners, OPEC data showed, while compliance was patchy among individual countries.

Iraq produced the most over its quota, by 348,000 b/d, followed by Nigeria at 136,000 b/d, Kazakhstan at 89,000 b/d and Angola at 72,000 b/d, according to the data.

"Getting laggards to hit 100% compliance is hard enough, but forcing them to compensate for prior poor performance sounds virtually impossible," Patterson said.

Saudi energy minister Prince Abdulaziz bin Salman said the cuts would actually be larger than 7.7 million b/d, since countries that exceeded their quotas in May and June have agreed to make extra compensation cuts in the third quarter.

"But just assuming that laggards do deliver and compensate in full for their shortfall so far, actual cuts would be in the region of 8.1-8.3MMbbls/d for August."

In other news, trade worries between the US and China remained but this time supported the oil complex after "President Trump has indicated that he does not want to add additional sanctions against China trying to ease tension with Beijing," analysts from Global Risk Management said.