Saudi Arabia and Russia reach record oil reduction agreement

Source: China Financial Information Network 　　 April 10, 2020

Sinochem New Network News The Organization of European Petroleum Exporting Countries and other oil-producing countries including Russia held a meeting on Thursday. Saudi Arabia and Russia have reached a record oil reduction agreement to revive the oil market that has been sluggish due to the price plunge under the impact of the new crown epidemic.

The OPEC+ post-meeting statement shows that the output will be reduced by 10 million barrels/day from May 1, 2020 for a period of two months; from July 2020, the output will be reduced by 8 million barrels/day to December; from January 2021, the output will be reduced by 600 10,000 barrels per day to April 2022. According to the draft production reduction agreement, Russia and Saudi Arabia will reduce production by 2.5 million barrels/day each from May to June; Iraq will reduce production by 1.06 million barrels/day from May to June; UAE will reduce production by 720,000 barrels/day from May to June; Kuwait will cut production by 640,000 barrels per day from May to June; Kazakhstan and Nigeria will cut output by approximately 400,000 barrels per day from May to June.

The statement did not mention production cuts in non-OPEC+ countries.

At present, the focus shifts to the G20 Energy Ministers' Meeting to be held on Friday. The next OPEC+ meeting will be held on June 10 this year.

OPEC+ reached a historic agreement, but failed to push up oil prices. On the same day, the price of light crude oil futures delivered by the New York Mercantile Exchange in May fell by 2.33 dollars to close at 22.76 dollars per barrel, a decrease of 9.29%; the price of London Brent crude oil futures delivered in June fell by 1.36 dollars to close at US$31.48 per barrel, a decrease of 4.14%. Because the market believes that the production cut agreement will not be enough to restore balance to the market. If major oil-producing countries, including the United States and Canada, also join the ranks of production cuts, it may be able to add strength to reviving oil prices.

OPEC+ representatives said that OPEC+ reached a preliminary agreement at a video conference on Thursday and will implement about 10 million barrels/day of production reduction measures in May and June; a representative said that Saudi Arabia and Russia will reduce their respective production to about 850 10,000 barrels per day, all members agreed to reduce production by 23%.

Delegates said that OPEC+ hopes to reduce G20 production by up to 5 million barrels per day, but even if G20 does not join this rank, they will still reduce production.

Although the overall output reduction is equivalent to reducing global supply by about 10%, it is far from being able to compensate for the decline in demand. Some traders estimate that the contraction of demand will reach 35 million barrels per day.

Russia insists that the United States in particular cannot rely solely on market forces to drive its record decline in oil production; on the other hand, Trump said that the shale gas industry is in trouble due to low oil prices, and US production will \"naturally fall\". .

The production cut agreement reached on Thursday dwarfed all previous market interventions. The physical oil market urgently needed such actions, but it was still unable to offset the unprecedented contraction in demand.