There is good news for oil producers across the world.
The price war that was raging between Russia and Saudi Arabia since the last one month has apparently come to an end as the two of the largest oil producing countries of the world are trying to persuade dozens of major crude producers to come to an agreement on output cuts for the stabilization of the global oil market which has been severely hit by the coronavirus pandemic.
A tentative deal to reduce production by 10 million barrels per day in May and June was agreed upon after a marathon video conference between OPEC members and other major energy powers on Thursday. If the deal goes through, it would be the deepest cut that the oil producers of the world have ever agreed upon.
However what can be a problem to the agreement is the refusal of Mexico to agree to the deal. According to reports citing meeting participants, a final deal can only be arrived at after Mexico joins the deal.
Objections about the scale of their cut and the length of the agreement were raised by Mexico, said reports quoting a senior OPEC source. It is expected that there wil be some form of production cuts till 2022 even though it is also expected that the most severe cuts are only scheduled to last until the end of June this year.
However, only about 10 per cent of the normal supply of oil to the world would be accounted for by the production cuts in the deal if it is ultimately finalized. But that number is way lower than the collapse in the demand for oil because of the coronavirus pandemic spreading across the world. And according to analysts, this production cuts will probably not be enough to address the massive drop in oil prices in recent months.
After the break down of talks over extension of production cuts between Saudi Arabia and Russia in early March resulting in the abandoning of a production pact that has been on for years, oil producing countries are desperate to stabilize global oil prices. The Saudi Arabia-Russia talks breakdown resulted in a price war as both the countries flooded the market with crude. Additionally, there has also been a massive plunge in demand for oil because countries going into lockdown and restricting travel because of the coronavirus pandemic across the world.
An alarm about both oil prices and demand was sounded on Thursday by OPEC Secretary General Mohammad Sanusi Barkindo.
“For the oil market, [the coronavirus] has completely up-ended market supply and demand fundamentals since we last met on March 6,” he said, according to a transcript of the remarks. “Our industry is hemorrhaging; no one has been able to stem the bleeding.”
According to projections about reduced demand, there is need for reducing production by 12 million barrels per day in the current quarter, Barkindo said. “These are staggering numbers! Unprecedented in modern times,” he said.
At that rate, “Given the current unprecedented supply and demand imbalance there could be a colossal excess volume of 14.7 million barrels a day in the second quarter of 2020,” he said.
(Adapted from CNN.com)