OPEC+ formulates a two-year oil cut deal to be implemented gradually

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According to the terms of the deal, OPEC+ will decrease its oil production by 10 million barrels per day (bpd) from May 1, 2020 to June 30, 2020.

Talks have been complicated by friction between OPEC leader Saudi Arabia and non-OPEC Russia, two of the world's biggest oil producers.

Kremlin spokesman Dmitry Peskov said action involving others was "unavoidable", even though he acknowledged US law barred American producers from joining any price cartel.

A nearly global economic lockdown to stem the dissemination of the coronavirus pandemic has damaged fuel demand, taming purchasing by almost 30%, and smashing oil prices to historic lows that took major petroleum bellwethers down by more than two-thirds before recovering in recent days in anticipation of action from oil producers.

Last month, Saudi Arabia, anxious about declining oil prices as after the coronavirus crisis set demand plummeting, proposal to cut production.

Opec said the cuts would be eased to eight million barrels a day between July and December.

The price of crude is down by over 50% since the start of the year and while that helps consumers and energy-hungry businesses, it is below the cost of production for many countries and companies.

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Russian Federation responded that a natural decline was not the same as making cuts. Bloomberg News reported that the main bottleneck was Mexico's unwillingness to agree to its share of cuts under the deal, which would have been 400,000 barrels per day.

President Donald Trump said he used to hate OPEC, but has had a change of heart. President Trump last week had touted a possible supply cut on the order of 15 million barrels per day, although the deal apparently was for just 10 million.

Kremlin spokesman Dmitry Peskov said Thursday that Russian Federation was advocating for a global move that not only includes Opec and Russian Federation, which had coordinated production cuts for four years until they fell out spectacularly this year, but also the United States.

Russia's move enraged Saudi Arabia, which not only said it would not cut production on its own but said it would increase output instead and reduce its selling prices in what became effectively a global pricing war. Oil demand in India has collapsed by as much as 70 per cent and some American refineries face closure as consumption fell to the lowest in at least three decades.

The participation of the U.S.in a coordinated voluntary production reduction is one of the key issues that OPEC+ today and the G20 energy ministers' meeting on Friday will be facing.

Riyadh and Moscow agreed that their cuts would both be calculated from an October 2018 baseline of 11 million bpd, even though Saudi supplies surged to 12.3 million bpd this April. The OPEC+ plan yesterday was to cut 10M BPD in May and June with calls for the USA and other producers to cut a futher 5M BPD.

In the longer run, improvements on the oil demand front are the only catalyst that can provide sufficient support for oil prices and get them back towards more reasonable levels.

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