Expected total global oil cuts effective May 1 amounts to more than 20 mln bpd: OPEC+

Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman speaks via video link during a virtual emergency meeting of OPEC+, following the outbreak of the coronavirus, in Riyadh, Saudi Arabia, April 9, 2020. (SPA via Reuters) 

OPEC+, the group composed of OPEC, Russia and other oil producing nations, said in a draft statement see by Reuters it expected the total global oil cuts which will come into effect starting May 1, to amount to more than 20 million barrels per day (bpd), or 20 percent of global supply.

That 20 million bpd figure is the effective total cut between OPEC+ and the G20 along with buying from the International Energy Agency (IEA).

The IEA said it will provide an update on the global oil supply and demand balances on Wednesday, April 15.

Earlier on Sunday, OPEC+ concluded a deal to cut production by 9.7 million bpd, representing a tenth of global supply, for two months starting from May 1 till June 30.

However, oil still fell after an initial jump when the markets opened early Monday, with West Texas Intermediate (WTI) for May delivery falling 1.9 percent to $22.32 a barrel on the New York Mercantile Exchange as of 6:21 a.m. in Singapore, and Brent for June delivery declining 0.3 percent to $31.39 a barrel on the ICE Futures Europe exchange.

Biggest oil cut ever

The OPEC+ deal to cut output by 9.7 million bpd is the biggest oil cut ever and is more than four times deeper than the previous record cut in 2008.

The deal caps a turbulent month when Brent crude, the global benchmark, plummeted to its lowest in nearly two decades, falling toward $20 a barrel. Earlier this year, it traded above $70 a barrel. OPEC+ ministers had to race onto a video conference call on Sunday, less than four hours before the oil market reopened on Monday, to close the deal.

The deal states that the OPEC+ countries will "adjust downwards their overall crude oil production by 9.7 mb/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020. For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 7.7 mb/d. It will be followed by a 5.8 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022."

"The baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 million bpd. The agreement will be valid until 30 April 2022, however, the extension of this agreement will be reviewed during December 2021."

Under the deal, Saudi Arabia will cut its production just a fraction under 8.5 million barrels a day – its lowest level since 2011.

The OPEC+ deal measures the Saudi cut from a baseline of 11 million barrels a day, the same as Russia. But in reality, the kingdom’s production will decline from a much higher level

The kingdom pumped 12.3 million bpd in April, which is higher than its agreed reference level of 11 million bpd under the new pact, meaning the effective cut by Saudi Arabia is about 3.8 million bpd.

Iranian Oil Minister Bijan Zanganeh told state television that Kuwait, Saudi Arabia and the UAE would cut another 2 million barrels of oil a day between them atop the OPEC+ deal. The three countries did not immediately acknowledge the cut themselves, though Zanganeh attended the video conference.

Kuwait’s oil minister said that his country’s quota according to the OPEC+ agreement is based on the October 2018 output level, whereby the cut in its share of output will be in the range of 640,000 bpd in May and June.

US President Donald Trump said in a tweet on Sunday after OPEC+ deal was concluded: “The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!”

Measures to curb the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining budgets of oil producers and hammering the US shale industry, which is more vulnerable to low prices due to its higher costs.

Global oil demand is estimated to have fallen by a third as more than 3 billion people are locked down in their homes due to the coronavirus outbreak.

Compromise with Mexico

The OPEC+ countries agreed to allow Mexico to cut its production by only 100,000 bpd, down from the initial proposed 400,000 bpd, a sticking point for an accord initially reached Friday after a marathon video conference between 23 nations.

Iran’s oil ministry said on Twitter: “The oil and energy ministers of OPEC+ countries, in their tenth extraordinary meeting via webinar, finally endorsed Mexico's offer to cut its output by 100,000 b/d in May and June, 2020.”

Mexico President Andres Manuel Lopez Obrador said on Friday that Trump had offered to make extra US cuts on his behalf, an unusual offer by a Trump who has long railed against OPEC.

Trump, who had threatened Saudi Arabia with oil tariffs if it did not fix the market’s oversupply problem, had said Washington would help Mexico by picking up “some of the slack” and being reimbursed later. He did not say how this would work.

Declaration of Cooperation

OPEC Secretary General Mohammad Barkindo said: “It was historic conference in many aspects. Extraordinary times caused by COVID-19, leading to the slump in the global economy and oil demand, required prompt and decisive response by the OPEC and non-OPEC Declaration of Cooperation (DoC) partners.”

He added: “these production adjustments are historic; they are largest in volume and the longest in duration, as they are planned to last for two years. We are witnessing today the triumph of international cooperation and multilateralism which are the core of OPEC values.”

He also noted that this agreement has paved the way for a global alliance with the participation of the G20.

- With Reuters, Bloomberg, and AFP

Read more:

Oil market reverses early gains as OPEC+ deal fails to revive prices

OPEC+ confirms oil output cut by 9.7 mln bpd from May 1 after compromise with Mexico

Leaders of Russia, US, Saudi Arabia support OPEC+ oil deal, says Kremlin

Saudi Energy Minister: Crown Prince led key talks to achieve OPEC+ 9.7 mln bpd cut

SHOW MORE
Last Update: Wednesday, 20 May 2020 KSA 10:06 - GMT 07:06
Top