Ejiofor Alike with agency reports
The ministers of the Organisation of Petroleum Exporting Countries (OPEC) have backed a plan for the organisation and other producers, including Russia to cut oil output by an additional 1.5 million barrels per day (bpd) to stabilise prices provided Moscow joins the deal.
Crude oil demand has been hit hard by the coronavirus outbreak, forcing prices to drop sharply.
Saudi Arabia wants OPEC and its allies, including Russia, to cut 1.5 million barrels per day (bpd) for the second quarter and to keep existing cuts of 2.1 million bpd, which expire this month, in place until the end of 2020.
But Riyadh, the biggest producer in the OPEC, and other members of the group have yet to win Russian support for such a deal.
Reuters reported that so far, Moscow has indicated it would back an extension but not a deeper cut.
Ahead of today’s OPEC+ meeting, analysts were concerned a long-standing energy alliance between Saudi Arabia and Russia would come under intense scrutiny because Russia’s appetite for deeper production cuts has been far from certain in recent weeks.
Moscow is reportedly in favour of an extension to the current level of cuts rather than a further reduction.
Oil prices reversed early gains to move lower yesterday International benchmark Brent crude traded at $50.85 for a loss of 28 cents, while US West Texas Intermediate stood at $46.64, around 0.3 per cent lower.
Speaking shortly after the OPEC meeting yesterday, Iranian Oil Minister, Mr. Bijan Zanganeh said that Tehran would remain exempt from the proposed reduction.
OPEC and non-OPEC producers first committed to curtailing their collective oil production policy back in 2016 in an effort to bolster prices, with the deal coming into force in January 2017.
In December 2019, it was extended and the alliance agreed to curb oil output by approximately 1.7 million barrels per day.
Saudi Arabia then opted to cut its own production voluntarily by an additional 400,000 b/d for three months, should fellow members stick to their commitments.
In February, OPEC’s joint technical committee (JTC) reportedly recommended a 600,000 bpd reduction in oil production, and an extension of the cuts to end-2020, to alleviate downward pressure on oil prices.
Saudi Energy Minister, Prince Abdulaziz bin Salman, who met his Russian counterpart, Mr. Alexander Novak in Vienna on Wednesday, has kept the market guessing about progress in the current negotiations.
Asked about prospects for a pact, the Saudi minister told reporters: “We will have to see today and tomorrow.”
Moscow, which has cooperated on output policy since 2016 in an informal group known as OPEC+, has in the past shown reluctance during negotiations but has signed up at the last minute.
OPEC sources have signalled that preliminary talks with Russia this week in Vienna have been trickier than before.
The slide in oil prices to about $50 a barrel has made it tough for OPEC states to balance their budgets, while Moscow has said it can cope with current prices.
Two OPEC sources said they anticipated that yesterday’s meeting in Vienna of OPEC ministers would go smoothly, with an agreement on a big cut, possibly above 1 million bpd, although a third source said allocating quotas could be tough.
But such a big reduction will hinge on Moscow.
If OPEC+ was to decide to remove an extra 1.5 million bpd from the market, it would bring the group’s overall output reduction to 3.6 million bpd or about 3.6 per cent of global supplies.
Russia’s energy minister returned to Moscow for consultations on Wednesday but will be back in Vienna on Friday (today) for the broader OPEC+ meeting. Novak made no public statements during his trip this week to Vienna.
OPEC sources had said earlier this month that Saudi Arabia might push through cuts even without Russia on board. But sources on Wednesday indicated growing frustration with Russia, saying Riyadh – already cutting far more than its quota demands – did not want to shoulder an even bigger burden without Moscow.
Oil demand has been hit hard by the coronavirus outbreak. Original forecasts for growth in crude demand in 2020 have been slashed, as factory operations, travel and other economic activities around the world have been curtailed by measures aiming to stop the virus spreading.
