OPEC Members Agree to Extend Oil Cuts Until Aug.

OPEC agreed on Saturday to extend record cuts in oil production until the end of July, after crude prices doubled in the past two months on the back of their efforts to withdraw nearly 10% of global supplies from the global market.

The  OPEC+ plus urged countries like Nigeria and Iraq, which exceeded the quotas in May-June to make further cuts in July to September.

Last April, OPEC + had agreed  that it would cut supplies by 9.7 million barrels per day during the period from May to June to support prices that collapsed due to the coronavirus crisis. These cuts were to drop to 7.7 million bpd from July until December 2020.

Meantime, decisions still need OPEC + approval, which includes 10 producers such as Russia and Kazakhstan.

The OPEC + draft said that a joint ministerial monitoring committee known as JMMC will now meet once every month until December to review the market situation.

Saudi Arabia, the de facto leader of OPEC, and Russia are expected to raise oil prices to meet their budgetary needs while not pushing them above $ 50 a barrel to avoid encouraging the return of rival oil shale production of the United States.

Oil achieved a significant return from the historic drop in US benchmark prices to the negative territory last May, with a large part of the recovery due to the production cut agreement between OPEC and its allies, and involuntary production cuts in the US.

CLN20 prices closed at $38.97 on Saturday, more than double since the negative adjustment at $ 17.63 in May 20, yet, -1.46% since Friday's $ 39.55 a barrel. Yesterday, prices got additional support as the upbeat US jobs data for May bolstered expectations for a further recovery in energy demand.

Despite the rally of prices in May, West Texas Intermediate (WTI) is still lower than it was in early March, before Saudi Arabia and Russia canceled their agreement to cut production. Prices stabilized around $46 the day before news of the deal collapsed.

OPEC Countries cut production to balance their budgets

"Most companies in the industry don't make money at these low prices, and even Russia and Saudi Arabia need oil to be above $ 55 a barrel to balance their budgets," says Alyssa Corcoran, analyst and director of research at Kopernik Global Investors., adding that these low prices are not sustainable for any meaningful period of time, which has formed very attractive buying opportunities for us.

"Prices will need to rise to the level of about $ 75 to stimulate new oil supplies, and it is still far from that. We find the best investment opportunities when the price is significantly different from the incentive price, as is the case with oil today," Corcoran added.

Meantime, there could still be a risk of secondary waves of COVID-19 cases, which could pose a major risk to oil demand and thus prices.