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OPEC+ Could Cut Up To 2.7 Million Bpd

OPEC could agree further oil production cuts at its meeting in Vienna this week, even if Russia decides not to join them, unnamed sources in the know told Reuters.

In February, OPEC proposed further cuts of 600,000 bpd to make up for demand loss amid the coronavirus outbreak, but Russia was reluctant to agree, noting there was no guarantee the deeper cuts would stimulate demand for oil, therefore pushing prices up.

Now, the cartel is talking about even deeper cuts, of up to 1 million bpd. It would put the total reduction at 2.7 million bpd, and this is not including the decimated Libyan oil output, currently at a little over 120,000 bpd, down from over 1.2 million bpd at the start of the year.

“Saudi Arabia wants to hold prices from falling, but Russia is still not agreeing. So the only way might be for OPEC to cut alone, which will not send a good signal to the market,” one source said, while another added, “There should be a cut, there is no other option.”

If Russia decides to sit this one out, the chances of further cuts improving prices would be slim. However, they would take care of the supply/demand balance at a time when all major energy authorities, including OPEC itself, are revising downward their demand forecasts for the year.

The EIA last month cuts its demand outlook by 378,000 bpd, after OPEC cut its own by 230,000 bpd and the IEA revised its demand forecast down by 365,000 bpd. The IEA also expects a dip in demand this quarter, and a sizeable one, at 435,000 bpd.

Oil prices, in the meantime, are sliding. On Friday, Brent crude dipped below $50 for a while before rebounding in Asian trade today. At the time of writing, the international benchmark was trading at $51.38, with West Texas Intermediate at $46.13 a barrel, both up by more than 3 percent from Friday.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on March 02 2020 said:
    As one of the world’s leading oil economists, I have repeating the same mantra, namely that any new cuts or a deepening of existing cuts even by 2.7 million barrels a day (mbd) by OPEC will have no positive impact whatsoever on oil prices while the coronavirus outbreak is raging. It will only lead to a loss of market share.

    President Putin who made Russia the world’s superpower of energy understands the global oil market well enough to realize the futility of any cuts while the outbreak is raging.

    One other reason behind Russia’s reluctance to join any cuts is that its economy can live with an oil price of $40 a barrel or less compared with $85 or even higher for OPEC members. Moreover, Russia has financial reserves estimated at more than $550 bn so it can afford to wait until the coronavirus outbreak is contained before making an assessment about the need for new cuts in support of oil prices.

    Moreover, OPEC should be very weary of calls by the likes of the International Energy (IEA) for it to deepen the cuts. These call aren’t motivated by their care for the welfare of OPEC members but by their own political agenda. For them, cutting more of OPEC’s production will lead to a reduction of its share in the global oil market and a weakening of its influence.

    Even if global oil demand is slashed by 1.0 mbd because of the outbreak, it will still reach 101.43 mbd in 2020 compared with 101.23 mbd in 2019 as things stand currently.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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