OPEC and its allies undecided on output cuts amid sanctions on Iran and Venezuela

The Organization of Petroleum Exporting Countries (OPEC) and its partners are unlikely to decide on their output policy in April as it would be too early to get a clear picture of the impact of their supply cuts on the market by then, three OPEC sources said on Monday.

The sources said the production policy by the so-called OPEC+ alliance is expected to be agreed on in June with an extension of the pact the likely scenario so far, but much depends on the extent of U.S. sanctions on both OPEC members Iran and Venezuela.

“So far the likely decision is to extend the agreement in June. Nothing much is planned for April, just to discuss the OPEC and non-OPEC (cooperation pact),” one OPEC source said.

OPEC and its allies are expected to meet in April and delegates also said another gathering is scheduled for June 25-26. The sources noted that the most likely outcome of the June meeting was “a rollover” of the current oil supply cuts.

“But production by the exempt countries is already more than 700,000 barrels per day below the October level. Maybe there will be some adjustment,” the second source said.

OPEC and its allies began new production cuts to avoid a supply glut that could soften prices, by reducing supply by 1.2 million barrels per day for six months. OPEC’s share is 800,000 barrels per day, to be delivered by 11 members, all except Iran, Libya and Venezuela, which are exempt from cuts. The baseline for the reduction was in most cases their output in October 2018.

As of February, OPEC had fully delivered the 800,000 barrels per day cut compared to October, according to a Reuters survey. Another 900,000 barrels per day of involuntary declines in the exempt producers since October boosted the total OPEC curb to 1.70 million barrels per day.

The United States has also imposed sanctions on state oil firm PDVSA in January, slowing exports. Output in the country, once a top three OPEC producer, has already been in decline for years due to economic collapse. Venezuelan oil minister Manuel Quevedo, who was included in the U.S. sanctions list, currently holds the OPEC presidency. OPEC sources say that Quevedo will continue in his post as the exporting group’s president.

Iranian oil export is also subject to U.S. sanctions, which have roughly halved Iran’s oil exports. But in November, Washington granted waivers to some buyers of Iranian crude allowing them to continue their imports as long as they cut the purchases significantly. The U.S. is set to decide whether it will renew waivers to oil-consuming countries on May 4.

“OPEC is now watching whether things are going to be more severe with Venezuela or Iran,” the first OPEC source said.