Published on : 04/10/2020 – 08:28
OPEC member countries and their allies including Russia have announced a reduction in their oil production by 10 million barrels per day. An effort on an unprecedented scale, but deemed insufficient by the oil markets.
The OPEC + meeting was extraordinary in every way. First videoconference of the Ministers of Energy, in a context of global containment, facing the coronavirus, it continued late at night from Thursday to Friday to achieve the greatest reduction in production of the history of this alliance of exporting countries: -10 million barrels per day, or 10% of the world supply, half of which is granted by Saudi Arabia and Russia. For the record, OPEC + had never exceeded 2 million 200,000 barrels per day of collective reduction.
Price jump of 11% then decline
However, the oil markets were disappointed by this announcement. Oil prices plunged back below 32 dollars a barrel, after having jumped 11% during the session Thursday and exceeded 36 dollars. An OPEC source first announced that a reduction of 20 million barrels per day was possible. Which roughly corresponded to the current oil surplus. In the end, therefore, it is a reduction of half the supply that is made. Markets doubt that it will suffice to wipe out all the oil that the coronavirus epidemic has made useless, since transport is largely interrupted all over the planet.
In addition, the alliance between the 13 OPEC countries, led de facto by Saudi Arabia, and the 10 non-OPEC countries, led by Russia, which had invited a dozen other countries to participate, including Norway , Brazil, Canada, failed to sign a final agreement, because, officially, of Mexico, which would have refused to reduce its production by 10%.
Purchasing strategic reserves?
Now all hopes lie in the meeting of G20 energy ministers this Friday. This time consumer countries, members of the International Energy Agency, will be associated. And so is the United States, which is also the world’s largest producer of oil today. Russia demanded that the United States participate in the joint reduction effort. Washington considered the reduction in production caused by the fall in world prices sufficient.
Another solution will be addressed during this G20: coordinated purchases of crude oil for the strategic reserves of consuming countries.