OPEC, Russia agree to cut oil production
By Tanko Mohammed
In a move to save the oil industry — facing the biggest crisis in its history — OPEC and Russia have forged ahead on new production cuts.
OPEC+ group has agreed to eliminate 10 million barrels of crude per day for an initial two-month period to save a glutted oil market.
Though the new OPEC+ deal is not dependent on additional cuts from outside the group to move forward — such as the United States, Brazil and Canada — OPEC+ is hoping for additional cuts from these and other G20 countries.
The OPEC+ production cuts will begin in May. From July to December, overall production cuts will lower to 8 million barrels per day, followed by 6 million barrels per day from January 2021 to April 2022.
The fate of a new “OPEC++” deal, in which additional countries could sign up to production cuts, will be the focus of a virtual meeting of G20 energy ministers on Friday, with the US Energy Secretary Dan Brouillette among the global energy leaders expected to participate in the webinar. Alberta Energy Minister Sonya Savage was on Thursday’s OPEC+ call, a first for Canada.
The production cuts, agreed to Thursday by OPEC member countries and OPEC+ countries, including Russia, will just run through June 10, when OPEC+ is set to meet again. Iran, Libya and Venezuela will be exempted from the production cuts. It also sees Saudi Arabia and Russia bearing the brunt of the cuts.
Despite the cuts, Brent crude was down 4 per cent at market close, losing pace from a nearly 11 per cent rally before the details of the deal were announced. Brent closed at $31.48 per barrel.
Thursday’s deal brings an end to the oil price war between Saudi Arabia and Russia — which started March 8 in an effort to regain market share captured by United States shale oil production in recent years. In ending the oil price war, both Saudi Arabia and Russia have called on the participation of other global producers to join production cuts.
That issue is set to be addressed at Friday’s virtual G20 meeting, but the United States has balked at the idea of officially joining cuts, citing an open market and anti-trust laws.
However, President Donald Trump has indicated the US — a top oil producer along with Russia and Saudi Arabia — will naturally see sharp declines in oil and gas production with the steep drop in oil prices and drop in global demand.
Trump has radically changed his position on OPEC, as the oil market collapse foreshadows a collapse of US shale.