0 $
2,500 $
5,000 $
2,247 $
10 DAYS UNTIL THE END OF OCTOBER 2020

OPEC+ Is Close To New (Not Very) Deal On Production Cuts

Donate

OPEC+ Is Close To New (Not Very) Deal On Production Cuts

Click to see full-size image

On April 9th, extraordinary, meeting of OPEC+ took place, and it was held via a webinar, due to the COVID-19 pandemic.

Its purpose is to reach a conclusion to the Saudi Arabia-initiated oil price war against Russia, and to stabilize the failing oil prices, in order to avoid a complete crude oil market crash, amidst an epic fall of demand.

According to unnamed Reuters sources, the production cut could be as big as 20 million barrels per day.

Prior to the beginning of the meeting, African Petroleum Producers’ Organization (APPO) issued a statement in support of the concentrated efforts to avoid a further deterioration of the situation.

After it began, Saudi Prince Abdul Aziz Bin Salman, Saudi Arabia’s Minister of Energy welcomed everybody and applauded the efforts in dealing with the situation that Riyadh itself initiated.

Mohamed Arkab, Algeria’s Minister of Energy and President of the OPEC Conference 2020 also applauded the efforts to resolve the crisis.

Russian Energy Minister Alexander Novak said:

“I thank his royal majesty Abdulaziz bin Salman al Saud, with whom we conducted intensive negotiations on the situation on the world market and ways to stabilize it, as well as the head of OPEC Mohammed Barkindo.”

In his opening remarks Mohammed Barkindo said that the COVID-19 crisis is without precedent.

“Only one month ago at the meetings in Vienna, expected 2020 global GDP growth was 2.4%.  Today, it is a negative 1.1%.  It is incredible to think that the global contraction is far greater than that for the Great Recession of 2008-2009.

In early March, expected 2020 global oil demand growth was just below 0.1 mb/d.  Today, we are looking at a contraction of 6.8 mb/d, with the second quarter alone close to 12 mb/d and expanding.  These are staggering numbers! Unprecedented in modern times.”

Thus, production according to him should be cut, as there would potentially be 14.7 million bpd in excess in the second quarter of 2020.

“All the producers here, OPEC, OPEC+ and other producing nations that have taken it upon them to responsibly join the meeting today, need to recall the severe market imbalance 2014-2016.  It was when oil producers lost trillions of dollars in foregone revenues, and globally more than $1 trillion was lost in terms of investment.”

If nothing is undertaken, in his view, the current situation would be much worse.

Finally, as a result, Russia and Saudi Arabia agreed on the contours of a deal to rectify the oil price slump.

Saudi Arabia is committed to reduce production by 4 million barrels per day, and Russia by 1.6 million.

It would seem that Russia is better off, but not quite: the reduction is from the current production, and it has been announced by Riyadh in recent weeks that it increased production to 12.3 million barrels per day, which is 2.4 million more than before it started flooding the market with discounted crude oil.

Prior to that, the Kingdom produced 9.9 million barrels per day.

Thus, effectively, both Russia and the SA pledged to reduce 1.6 million barrels per day. Back on March 6th, when Riyadh began the oil war, the offer was a reduction of 1.5 million barrels per day.

Essentially, a slightly worse version of the March 6th agreement is not acceptable.

The intrigue is now whether other non-OPEC + countries, first of all the United States, will join the agreement.

On April 10th, Saudi Arabia will host a meeting of the energy ministers of the G20 and then there will be further clarity on what the future course of action is.

The apparent detente was felt immediately, as US West Texas Intermediate crude rose 12% to $28.36 per barrel at intraday highs. International benchmark Brent crude gained as much as 11% to $36.40 per barrel. Both pared gains midday as traders digested the lastest developments.

The total OPEC+ cut is expected to be around 10 million barrels per day, with WSJ even reporting that Russia would cut as much as 2 million barrel per day. And if this is true, then Russia would be even worse off than if the presumed March 6th deal had been accepted.

On top of the 10 million barrel reduction per day aimed from OPEC+, it is expected to ask the G20 to reduction production by 5 million, to a total of 15 million barrels per day reduction.

MORE ON THE TOPIC:

Donate

SouthFront

Do you like this content? Consider helping us!