• Saudi-led alliance has restored stability to global crude market
• Production will increase by 2 million barrels per day

Frank Kane

DUBAI: The global oil alliance led by Saudi Arabia and Russia agreed unanimously on Wednesday to the second stage of a historic output agreement that has restored stability to crude markets.

Production will increase by 2 million barrels per day, most of that consumed in OPEC+ countries as their economies recover and domestic energy consumption rises over the summer.

“On the demand side, we see encouraging signs of improvement. Economies around the world are opening up,” said Prince Abdul Aziz bin Salman, the Saudi energy minister and chairman of the ministerial committee that oversees the 23-country alliance.

“As we move to the next phase of the agreement, the extra supply resulting from the scheduled easing of the production cut will be consumed as demand continues on its recovery path.”

The minister estimated that Saudi Arabia would consume an extra 500,000 barrels per day in the summer months as domestic demand rose and pandemic restrictions continued to limit foreign travel. The Kingdom’s oil exports will be unchanged in August.

The agreement is phase two of the historic cuts in April that are credited with rebalancing the global oil market. From next month, output cuts will be reduced from 9.6 million barrels per day to 7.7 million until the end of this year.

OPEC+ reported that the compliance level for June — the extent to which its members had adhered to the reduced output targets — was a record 95 per cent. “We had a mood of celebration today, because in 33 years we’ve never achieved 95 per cent,” Prince Abdul Aziz said

Some producers, including Saudi Arabia, the UAE and Kuwait, reduced output even more than required. Countries that had not met compliance levels in the past, such as Iraq and Nigeria, committed themselves to reaching the targets and compensating for past oversupply with further cuts in the summer months.

Prince Abdul Aziz was cautiously optimistic that demand would continue to rise as global economies recovered from the pandemic. “Although this is a cautious and gradual process, and there could be localized or partial lockdowns in some places, the recovery signs are unmistakable,” he said.

His comments were echoed by Alexander Novak, the Russian energy minister, who said the new production levels were “justifiable and in line with market trends.”