An oil refinery in Texas, March 8, 2020. – Gregory Bull / AP / SIPA
OPEC and its partners agreed on Sunday evening to “the biggest drop in production in history”, in the hope of driving up oil prices in the midst of a pandemic
coronavirus and despite the tensions between Moscow and Ryad. The meeting “ended with a consensus of OPEC + producers on production cuts from May,” Saudi energy minister Abdul Aziz bin Salman wrote on Twitter.
His Kuwaiti counterpart Khaled al-Fadhel confirmed the “historic deal to reduce production in OPEC + member states by almost 10 million barrels a day, effective May 1”. Mexican representative Rocio Nahle Garcia also praised on Sunday “the unanimous agreement of the 23 participating countries”, speaking of a “reduction of 9.7 million barrels of oil” from May.
“The worst is currently avoided”
According to Bjornar Tonhaugen, analyst at Rystad Energy, “OPEC + has successfully reached a historic agreement today to achieve the biggest drop in production in history.” “Even if the production cuts are less than the market needed, the worst is yet to be avoided,” said colleague Magnus Nysveen. The Organization of the Petroleum Exporting Countries (OPEC) resumed a videoconference started on Thursday with the OPEC + cartel led by Russia, the world’s second largest producer.
For them to take place, Ryad and Moscow had resumed dialogue after a price war started after their last conference on March 6 in Vienna, Austria, at OPEC headquarters. The two exporters had been surprised in the meantime by the rapid spread of the coronavirus, which had penalized demand in recent weeks, at a time when the supply of crude was already strongly in surplus.
“In my opinion, the actions (of Saudi Arabia, editor’s note, which increased its production) were irrational because the increase in extraction in times of declining demand – it is irrational even from the point of view of economic theory, “Russian energy minister Alexander Novak, quoted by Russian agency TASS, said Sunday before the conference began.
The US “supports the agreement”
After lengthy negotiations at dawn on Friday, OPEC and its partners agreed to cut global production in May and June to 10 million barrels per day, according to OPEC. But Mexico, which found the effort demanded excessive (production reduction of 400,000 barrels per day), had not given the green light to the agreement.
Rystad energy, however, doubts the ability of producers to support prices despite the agreement. “A reduction of 10 million barrels a day in May and June will prevent prices from falling into an abyss, but it will still not restore balance to the market,” say analysts.
The United States, the world’s largest producer, is not a member of Opep + but, according to Alexander Novak, it “supports the deal”, which is favorable to its shale oil industry, which is in deep trouble. “They say they are ready to help cut production: we have heard figures ranging from 2 to 3 billion barrels per day,” the Russian minister said on Sunday. He said he did not expect a favorable turnaround in economic conditions “before the end of the year, at best.”
While still hovering around $ 60 a few months ago, prices reached levels seen at the beginning of last week since 2002. The price of a barrel according to the OPEC basket, which serves as a benchmark for the cartel , was just above $ 21 before the deal was announced, while half of humanity remains confined.
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