Ministers from the OPEC cartel have agreed to allow more oil to flow from the taps, saying demand for oil is growing as economies take steps to reopen.
But they also cautioned that they could revisit the decision in an emergency meeting if there are serious lockdowns that further reduce demand for oil.
The Organisation of the Petroleum Exporting Countries and other nations agreed to ease up on cuts during a video conference Wednesday.
They chose to stick with a production schedule they had crafted in a previous meeting which allows participating countries to produce more oil in August than they have in the past few months.
The OPEC nations and their allies will cut production by at least 7.7 million barrels per day in August, essentially putting about 2 million more barrels per day on the market than they did in July, analysts said.
We should not be complacent, said Abdelmadjid Attar, Algeria's minister of energy, during the meeting. Oil market balance is progressively improving...But risks and uncertainties are huge, be they related to the pandemic or to the economic consequences.
OPEC, which has 13 member states, is largely dominated by oil-rich Saudi Arabia. There are additional countries involved in the so-called OPEC Plus group, which has been led by Russia.
Together, the oil-producing nations had agreed to cut production by nearly 10 million barrels per day, which amounts to about 10% of global oil supply, through the end of July.
Those deep cuts were enacted in April as the world stopped flying and commuting during the pandemic, cutting back dramatically on oil consumption.
It's unclear whether there's enough demand to warrant OPEC putting more oil on the market, said Jack Rousseau, managing director at Clearview Energy Partners. That seems a little big questionable to me, because there's so much uncertainty with all the different case counts rising, Rousseau said.
Cases of COVID-19 are rising rapidly in the US. The 14 states with the highest concentrations of cases in the US consume about 45 per cent of the nation's oil, he said.
Meanwhile, oil companies in countries that are not a part of OPEC have announced plans to increase production as well.
Oil demand has bounced back from the lows that saw daily drops of more than 20 million barrels per day in April, but it is still expected to witness an annual drop of 8.9 million barrels per day for the whole of 2020, said Mohammad Sanusi Barkindo, secretary general of OPEC, during the meeting.
Given considerable uncertainties, the expected rebound in 2021 will be short of covering the lost demand this year and will not reach pre-crisis levels of 100 million barrels per day soon.
Economic recovery also could bring renewed power struggles among OPEC and other oil-producing nations, where relationships are fragile.
If there's room in the market and the price goes up, the longer that happens, the longer you get into the dilemma of who's going to take that extra market share, said Amy Myers Jaffe, senior fellow at the Council for Foreign Relations.
The price of oil, which crashed below zero in April, has recovered some ground and was trading above USD 40 a barrel Wednesday. But that's still below what many producers need to break even.
The OPEC ministers also discussed the need for better compliance from some countries, such as Iraq and Nigeria, which have produced more oil than they were supposed to under past agreements. In recent months, compliance has improved, several ministers said.
Looking ahead, each of us now needs to double down on the unanimous decisions we have made, Barkindo said. We need to remember that strength, collaboration and positive outcomes come only through continuous effort and struggle from each and every participant.
