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Friday, April 10, 2020
The Organization of the Petroleum Exporting Countries and other petroleum-producing countries, including Russia, met by teleconference for the 9th Extraordinary OPEC and non-OPEC Ministerial Meeting on Thursday. The grouping, now known as OPEC+, reached an agreement to temporarily cut production volumes amounting to about 10 million barrels per day, or roughly 10%, in May and June only. Beginning in July the cuts will drop to 8 million bpd, and then drop further to 6 million bpd from January 2021.
These cuts on their own, while significant, are not likely to reverse the freefall in oil prices or boost investor confidence. OPEC+, by some reports, has called on other producers, such as the U.S., to cut production by an additional 5 million barrels per day. At Saudi Arabia’s urging, the Group of 20 nations meeting held the next day (Friday), had discussions on potential additional cuts from other non-OPEC+ producing countries on its agenda. Mexico and the US were at the top of the list.
Russia and OPEC were able to gain a commitment by Mexico to cut 100,000 bpd, far short of the 400,000 bpd requested. US President Donald Trump said his nation would make up the difference. “Mexico is going to reduce by 100,000 barrels and that would mean that they’re 250,000 to 300,000 barrels short. We’d make up the difference, they would reimburse us at a later date,” Trump said.
Oil prices made gains earlier on Thursday but despite the record size of the initial cut, but oil prices moved lower later in the day. Oil prices dropped again on Friday on traders’ oversupply fears. The price of Brent crude fell nearly 2.5% to $31.82 per barrel on Friday, despite the OPEC+ news of further cuts.
Reduced global demand due to the Corona Virus has spurred the downturn along with the initial oil production war between Saudi Arabia and Russia who failed to come to an agreement at the previous meeting. As nations recover and get a handle on their domestic COVID-19 outbreaks, demand should increase but there is plenty of oil being stored at the moment so the petroleum industry may not see a return to normalcy until 2021, barring any new external developments.
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