OPEC+ made a critical decision

US, WASHINGTON (ORDO NEWS) —  Two days of many hours of video calling and this is the result. Oil-producing countries will cut production by 15 million barrels per day. The agreement includes countries that together control 70 percent of global oil production.

This is a valid universal reduction. 23 countries are ready to reduce production in order to stabilize the situation on the oil market.

“We discussed for a very long time. Everyone agreed that decisive measures should be taken. To reduce production by 10 million barrels in total in May and June. Then, gradually increase production over the course of six months. Then the reduction will be 8 million barrels per day,” said the Minister of Energy Alexander Novak.

So, in May-June, OPEC + countries reduce production by 10 million barrels per day. Then, when the situation stabilizes, production will increase somewhat, and thus, by the end of the year, the decrease in volumes will amount to 8 million barrels per day, and then until April 30, 2022 the decrease will harden at the mark of 6 million barrels per day.

All these levels will be calculated based on the base production index for October 2018, with the exception of Russia and Saudi Arabia, for which the reference base is 11 million barrels per day.

Moscow and Riyadh will have to produce in May-June each of 8.5 million barrels per day. And from July to December, this level will increase to 8.99 million barrels per day, then – at 9.495 million barrels.

“The agreement reached within OPEC + was absolutely timely. Both Saudi Arabia and Russia faced problems, not only financial ones – they could more or less overcome through their so-called” airbags “, but rather with a common regulatory system oil market, “explained Columbia University professor Anthony Half.

The decision signed the day before will be valid until April 30, 2022, a possible extension will be discussed in December 2021. Why 2 years? It is necessary to make it clear to the market that manufacturers are determined, and in order to knock the soil out from under the feet of speculators playing for a fall. Such a significant reduction in production will quickly remove the excess oil reserves formed in February-March-April.

Of course, given the pandemic, it is impossible to immediately solve the problem of overstocking, now there is an overabundance in the raw materials market. But, thanks to the agreement, the tension is removed, the overflow period of the storage facilities is delayed until the moment when demand begins to recover.

“This is a guarantee to those who buy for processing and use, they are dangerous both low and high prices, because the low can rise and raise all costs, and the high price can fall at any time and there will be an imbalance in the market,” said political analyst Marat Bashirov.

The main stumbling block in the negotiations is the position of Mexico. Based on the calculations for May-June, the country, like other parties to the transaction, was supposed to reduce production by 400 thousand barrels per day. But in this country they said they were ready for only 100 thousand. Later, US President Donald Trump said that the remaining 300 thousand are ready to cut the United States.

“The United States, which criticized the conspiracies and did not participate in the agreement, is vitally interested in it. The only moment is how they will join this agreement because they have strict antitrust laws and they hide behind them, but the situation in the USA is so critical that it doesn’t participate the USA cannot do it,” explained Vyacheslav Mishchenko, head of the working group on pricing and markets at the Russian Ministry of Energy.

From the USA, Canada, Norway, Colombia, Brazil, Argentina are expected 5 million barrels per day. For the first time in history, these countries are participating in general stabilization negotiations. If suddenly one of the countries violates the agreement, the agreement will cease to be valid, and other participants will also increase their volumes.

In general, production is now declining by 23 percent. And this is critical to the market. After all, the price of oil has fallen by 60 percent since the beginning of the year, quotes are at the level of thirty dollars per barrel.

The pandemic, which has actually limited movement around the world, has slowed down the global economy and led to a decrease in oil demand. In the 2nd quarter, it may fall by 15-20 percent year-on-year. Despite the fact that the storage is almost full.

Now the situation should stabilize. The Russian Ministry of Energy said that if necessary, they will take additional measures. The companies have confirmed that they are ready to reduce.


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