Opec+ stressed it requires 100 per cent conformity from all members as it awaits plans from nations that exceeded agreed production limits to implement compensatory cuts.
At the group’s latest joint ministerial monitoring committee meeting, Opec+ said that compensation for shortfalls in May, June and July "is not only fair, but vital for the ongoing rebalancing efforts and to help deliver long-term oil market stability”.
The alliance came together in April to implement historic production cuts in response to a record drop in demand as movement restrictions to halt the spread of the coronavirus grounded planes and kept people at home. US crude prices also fell below zero for contracts for May delivery over storage constraints, prompting concern over the stability of oil markets. Opec+ drew back 9.7 million barrels per day from May until July, and has since tapered restrictions to 7.7m bpd. Countries that produced above their quotas have been asked to make additional cuts until September.
“It [the JMMC] also requested other underperforming participating countries to submit their plans for implementation of the required compensation for the overproduced volumes to the Opec Secretariat by the end of next week, 28 August 2020,” a communique following the meeting read.
The group achieved 97 per cent compliance last month.
Saudi energy minister Prince Abdulaziz bin Salman, who addressed the JMMC ahead of the meeting, said he expected oil demand to recover to 97 per cent of pre-Covid-19 levels by the end of the year.
The Opec communique said there were "signs of gradually improving market conditions" but added the pace of recovery is slow with growing risks of a prolonged wave of Covid-19.
The group’s joint technical and monitoring committees will next meet on September 16 and 17, respectively.
"Opec+ had a cautionary tone in relation to oil demand, and this has taken some wind out of oil trade," said Naeem Aslam, chief markets analyst at Avatrade.
International benchmark Brent was down 0.90 per cent at $44.96 per barrel at 5.01pm UAE time, while West Texas Intermediate was down 0.89 per cent at $42.55 per barrel.
The US benchmark slipped from a five-month high as markets remained concerned about poor demand recovery for the second half.
The International Energy Agency last week cut demand growth projections for the first time in three months by 140,000 bpd, while Opec pared its forecast by 100,000 bpd. Platts Analytics estimates that oil demand will decline by 8.2m bpd year-on-year in 2020, but will increase again by 6.7m bpd in 2021. A potential second outbreak of the virus is a looming concern for oil markets. More than 22.5 million people have been infected by coronavirus as of Thursday, according to Worldometer, which tracks the pandemic. Covid-19 has claimed 791,200 lives so far, with the US accounting for more than one-fifth of all fatalities.
Despite the scale of the pandemic in the country, the market share of US shale producers is likely to increase as long as WTI remains above $40 per barrel, said Ehsan Khoman, head of Mena research and strategy at MUFG Bank.
"At the peak of Covid-19 disruptions, we estimate that 1.9-2.2m bpd of US production was either shut-in or curtailed, as prices fell below operating costs. These wells have been returning to production since the start of July, with the majority of shuttered production expected to be back online by September,” he said in a note on Thursday.
The oil market looks "increasingly swamped", according to Swissquote Bank commodity analyst Ipek Ozkardeskaya. A lower-than-expected decline in US inventory by 1.9m barrels last week, according to the Energy Information Administration, signalled an elevated level of supply.
If the price of WTI fails to break through a resistance level of $43 a barrel, this could "encourage a downside correction toward the $40 mark", Ms Ozkardeskaya said.
