US, WASHINGTON (ORDO NEWS) — On the morning of April 13, the latest news about an emergency video conference dedicated to the OPEC + talks on oil was released. The participating countries have finally agreed to reduce production. At the first stage, in May and June of this year, countries will daily reduce production by 9.7 million barrels. This is the largest production reduction agreement concluded since OPEC + was created.
This time, OPEC + oil negotiations met with obstacles at every turn. A month ago, due to the collapse in oil prices, Saudi Arabia and Russia at first repeatedly threatened that I would not cut production, but the low market price (below $ 20 per barrel) ultimately caused losses to oil-producing countries. After surviving for almost a month, Saudi Arabia and Russia finally returned to the negotiating table.
During the current round of the OPEC + emergency meeting, launched on April 9, the parties could not come to a final decision on the conclusion of an agreement within a few days. Initially, it was planned at the first stage to reduce crude oil production by 10 million barrels, but Mexico was not satisfied with its share of production decline by 400 thousand barrels per day and expressed its readiness to reduce production by only 100 thousand barrels. which led to the severance of the agreement. Finally, after the United States directly intervened in the negotiations, on the morning of April 13, the parties were able to reach consensus.
The historic significance of this agreement lies in the fact that the United States, which was not originally part of OPEC +, actively intervened in their progress in the last minutes of the negotiations. Under the agreement, the United States, Brazil, and Canada will carry out a total reduction of production of 3.7 million barrels per day, while other G20 countries will reduce production by a total of 1.3 million barrels per day. From a practical point of view, this agreement to reduce production is of great importance for the “three largest oil giants” – Saudi Arabia, Russia and the United States.
Saudi Arabia and Russia escaped the continuation of “fighting alone when neither side wins,” and the United States promptly intervened in the oil conflict between Saudi Arabia and Russia, deftly extending a helping hand and saving them from future battles. In addition, America has ensured that the “games of the two countries” related to oil prices for a certain period turned into a “murder of three states.” President Donald Trump has also once again demonstrated his “art of trading” in the oil market.
Despite the fact that the results of the OPEC + negotiations on oil were achieved with great difficulty, it should be noted that this agreement does not contain strictly binding provisions, and therefore there is the possibility of non-compliance in the future. In accordance with the agreement, a plan to reduce production will be implemented from May 2020 and is designed for two years. In December 2021, it will be revised again by the participating countries.
The plan is divided into three phases, which include: from May to June 2020, a daily decrease in production of 9.7 million barrels; from July to December 2020, a decrease in production of 8 million barrels; and from January 2021 to April 2022 – at 6 million barrels per day. Saudi Arabia and Russia will cut daily production by 11 million barrels, while reduction quotas in other countries will be based on their respective production volumes in October 2018. It is easy to see that the agreement defines the share of production decline at various stages by more than a year and a half for the main international oil producing countries, but is it possible to implement it? It is difficult to answer this question. There are a number of uncertainties.
Firstly, an agreement to reduce production was reached in a specific period, mainly reflecting market expectations from the ratio of supply and demand. The world is now facing unprecedented challenges. In particular, the uncertainty associated with the development trend of new coronavirus pneumonia spreading throughout the world, and the situation with the epidemic and the fight against it in the main oil-producing countries, Saudi Arabia, Russia and the USA, does not look optimistic.
During the difficult phase of the epidemic’s active development, oil-producing countries hope that the oil market will temporarily stabilize and oil prices will also remain relatively stable to provide strong financial support for the pandemic. We may notice that after the signing of the agreement, international oil prices did not rise significantly,
Secondly, at present, the OPEC + system in the oil market cannot fully reflect the structure of supply and demand, and the United States has actually become the main factor behind the hidden “off-system forces” that control the oil market. The current OPEC + mechanism was formed in 2016 and includes the organization of OPEC led by Saudi Arabia and 23 countries that are oil producing countries that are not members of OPEC, led by Russia, but the United States, the world’s largest oil producer, is not included to this organization.
At first, the United States did not seek to join the OPEC + system, mainly because it wanted to maintain its influence on oil producing countries, such as Saudi Arabia and Russia, outside the mechanism. But the continued existence of the United States outside this system has had a negative impact on the immediate stability of the international oil market.
Recently, President Trump has talked directly with the leaders of Saudi Arabia and Russia many times, reflecting the US desire to play a key role in the fight for the energy market between Saudi Arabia and Russia. However, on the other hand, it is still difficult to determine whether the United States will gain control of major oil producing countries in the future.
Thirdly, despite the “historical” significance of this agreement to reduce oil production, the strength and prospects of this agreement remain a big question. The biggest problem for the stability of the international oil market at present and in the foreseeable future is still the vague prospects for the development of an epidemic of new coronavirus pneumonia.
The number of diagnosed cases of new coronavirus infection worldwide has reached 1.7 million, and now it is difficult to determine how many more will be infected. Opinions are already being expressed that the impact of the current epidemic of coronavirus pneumonia on the world will be stronger than the influence of the First and Second World Wars. If this is the case, then the global economy and energy system will undergo unprecedented changes. Can be expected
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