OPEC+ and Iraq come to terms with cheating, to strengthen the agreement

Iraq, the usual quota cheat of OPEC, said it will implement its oil-producing cuts in full this month, and agreed on details of how to compensate for falling short of its May target.

The agreement, reached basically earlier in June, was finalized at a ministerial video conference on 18 June 2020. It gives the OPEC+ supply deal added legitimacy and could pull even more oil off the market just as demand recovery from the coronavirus pandemic starts accelerating.

Last month the Petroleum Exporting Countries Organization and its allies dropped by 1.26 million short of their 9.7 million-barrel-a-day cuts target. That volume will be fully compensated in the months to come, said a delegate, who asked not to be named as the information is private.

"OPEC+ takes its mission very seriously," said Ben Luckock, co-head of oil trading at the Trafigura Group commodities building, in a pre-meeting interview. "Let's have better results. The message was taken very seriously at the last meeting, and none would wish to go to the next OPEC+ meeting and be labeled a cheater.

Global oil prices held close to $40 a barrel, double the April level. The recovery started after OPEC+ agreed to end a price war and cut its biggest ever output. A rapid recovery in demand has further assisted the rebound as Europe and the US join the initial lockdown-led China-led comeback.

Nevertheless, oil markets remain fragile, with a massive surplus in stockpiles of fuel and a second wave of price-weighing virus threatening. Earlier this month, OPEC+ decided to continue its cuts to the deepest point in July, rather than taper them as expected. The group also put intense pressure on members who failed to deliver on their pledged reductions.

The OPEC+ Joint Ministerial Monitoring Committee agreed at Thursday 's meeting that global oil inventories could decline to a five-year average level later this year or mid-2021, provided member countries fulfill their obligations, Russian energy minister Alexander Novak said in an interview with Rossiya 24 TV channel.

Iraq had promised to reduce daily production by more than 1 million barrels but, the delegates said, fell short of that target by 573,000 barrels in May. To account for this, in July Baghdad decided to go 57,000 barrels a day below its quota, and in August and September 258,000 lower, they said.

Kazakhstan has also agreed on the details for its compensation cuts, said a delegate. Nigeria and Angola haven’t yet submitted plans, and have until June 22 to do so, said another.

The monitoring committee didn’t discuss extending or deepening the cuts beyond the current plan, delegates said. It will hold a press briefing early next week, and its next formal meeting on July 15, they said.

Under the current deal, OPEC+ will taper its supply cut from August to December to 7.7 million 

barrels a day, then shorten the curbs further to 5.7 million barrels a day by April 2022.