Saudi Arabia could be prepared to slash its crude oil production by up to 4 million barrels per day (bpd), but only if its record expected April production of 12.3 million bpd is taken as a baseline, a source with knowledge of the Saudi policy told Reuters on Thursday, two hours before the OPEC+ group is slated to hold a video meeting on cuts at 10:00 a.m. EDT.
Saudi Arabia may be touting an impressive 4-million-bpd cut, but this cut from a record 12.3 million bpd (yet to be reached in April) would be a much smaller cut of around 1.5 million bpd if compared to Saudi Arabia’s production level of below 10 million bpd in March. If the expected Saudi output of 12.3 million bpd in April is reduced by 4 million bpd, Saudi Arabia is signaling it would not cut its production below 8.3 million bpd.
After the previous OPEC+ meeting collapsed with a ‘no deal’ in early March, Saudi Arabia told the market that it would continue to supply a record 12.3 million bpd to the oil market in the coming months, as per order from the energy ministry.
After last week’s diplomatic push from U.S. President Donald Trump and his hint at a massive production cut of at least 10 million bpd, Saudi Arabia scrambled to put out a statement calling for an emergency meeting of the OPEC+ nations and all other major producers not part of the format, in order to discuss ways to support the crumbling oil prices amid crashing demand.
After several days of delay, OPEC+ is set to discuss today the idea of a global collective production cut. The Saudis and Russia are back to the negotiating table, but they both signal, especially Russia, that any cut should involve ‘every major’ oil producer, including the United States.
The participation of the U.S. in a coordinated voluntary production reduction is one of the key issues that OPEC+ today and the G20 energy ministers’ meeting on Friday will be facing. The other is the good old bickering over who’s willing to cut how much within OPEC and the larger OPEC+ group and what production level to take as a baseline for the cuts.
According to Reuters, Russia believes that the baseline should be the average of the January-March 2020 production, before the Saudis ramped up output to wage a war for market share.
By Tsvetana Paraskova for Oilprice.com
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Saudi Arabia has never ever in its oil history had a production capacity of 12.3 mbd and will never ever achieve one. It could at best produce some 8.0-9.0 mbd with another 700,000 b/d to 1.0 mbd coming from storage. This is so because its current production comes from five giant but aging and fast-depleting oilfields discovered more than 70 years ago.
If they cut 4 mbd, then their crude oil exports will decline from 7 mbd to 3 mbd which aren’t enough to support their budget. They could only afford to cut 1 mbd.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London