Oil

Saudi Arabia says 'no room whatsoever' for noncompliance over OPEC+ production cuts

Key Points
  • "We have no room whatsoever for lack of conformity," Saudi Energy Minister Prince Abdulaziz bin Salman said during a virtual press conference on Monday.
  • His statement comes shortly after OPEC and non-OPEC allies, often referred to as OPEC+, agreed to extend its deepest round of production cuts in history to take roughly 10% of oil supplies off the market through to the end of next month.
  • International benchmark Brent crude futures traded at $41.72 a barrel, down around 1.3%, while West Texas Intermediate futures stood at $38.88, over 1.6% lower.
Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman Al-Saud speaks via video link during a virtual emergency meeting of OPEC and non-OPEC countries, following the outbreak of the coronavirus disease (COVID-19), in Riyadh, Saudi Arabia April 9, 2020.
Saudi Press Agency | Reuters

OPEC kingpin Saudi Arabia and non-OPEC leader Russia said Monday that the success of the energy alliance's latest production cuts relies on all members complying with the terms of the deal.

The statement comes shortly after OPEC and non-OPEC allies, known as OPEC+, agreed to extend its deepest round of production cuts in history to take roughly 10% of oil supplies off the market through to the end of next month.

"We have no room whatsoever for lack of conformity," Saudi Energy Minister Prince Abdulaziz bin Salman said during a virtual press conference on Monday.

Those that failed to conform to the OPEC+ deal in May and June should compensate with extra cuts from July through to September, Prince Abdulaziz said.

Russian Energy Minister Alexander Novak said via a translator that he fully agreed with his Saudi counterpart. "I can say that overall conformity levels are extremely high, considering the magnitude of the cuts and how bad the situation is."

"We have spent a lot of time discussing full conformity and how this will be compensated because the success of the deal and the success of our efforts rests on all countries doing their part," he added.

International benchmark Brent crude futures traded at $41.72 a barrel, down around 1.3%, while West Texas Intermediate futures stood at $38.88, over 1.6% lower.

Both contracts pared gains after rising to their highest level since March 6 earlier in the session, climbing to $43.41 and $40.44, respectively.

What has been agreed?

Oil prices have surged since some of the world's most powerful oil producers brought in a production cut of 9.7 million barrels per day from May 1. The move was designed to prop up prices at a time when the coronavirus pandemic had led to an unprecedented demand shock in energy markets.

The International Energy Agency estimated that roughly 25% of demand was drained from the market in April as confinement measures brought mobility to a near standstill for billions of people across the globe.

The output cuts from OPEC+ were initially scheduled to be scaled back to 7.7 million barrels per day from July 1 through to the end of the year.

But the new deal, secured over the weekend, means the group will now cut 9.6 million barrels per day through to the end of July. The figure is 100,000 barrels per day lower than the previous agreement because Mexico said it remained committed to the terms of the original deal and subsequent reduction in cuts.

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Saudi Arabia's energy minister insisted on Saturday that the actions of noncompliant members of the energy alliance, such as Iraq, Nigeria, Angola and Kazakhstan, would be "vital" if OPEC+ is to restore confidence in the "unity and effectiveness" of the group.

Nonetheless, speaking at Monday's news conference, Prince Abdulaziz was unequivocal when it came to the future of the energy alliance.

"OPEC+ is until death do us part," he said.

The group will review its production policy on a monthly basis, with the next group meeting scheduled to take place on June 18.

— CNBC's Pippa Stevens contributed to this report.