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  • Russian Energy Minister Alexander Novak, Saudi Energy Minister Khalid Al-Falih, Minister of Energy and Industry in United Arab Emirates Suhail Al-Mazrouei and OPEC Secretary-General Mohammed Barkindo (L-R) attend a press conference after a OPEC and non-OPEC oil producers meeting in Vienna, Austria, June 23, 2018.

    Russian Energy Minister Alexander Novak, Saudi Energy Minister Khalid Al-Falih, Minister of Energy and Industry in United Arab Emirates Suhail Al-Mazrouei and OPEC Secretary-General Mohammed Barkindo (L-R) attend a press conference after a OPEC and non-OPEC oil producers meeting in Vienna, Austria, June 23, 2018. | Photo: Xinhua

Published 5 March 2020
Opinion

The last time OPEC reduced supplies on such a scale was in 2008 when it cut production by a total of 4.2 million bpd to address slower demand because of the global financial crisis.

OPEC agreed on Thursday to cut oil output by an extra 1.5 million barrels per day (bpd) in the second quarter of 2020 to support prices that have been hit by the coronavirus outbreak but made its action conditional on Russia and others joining in.

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Russia and Kazakhstan, both members of the broader and informal group known as OPEC+, said they had not yet agreed to a deeper cut, raising the risk of a collapse in cooperation that has propped up crude prices since 2016.

Oil demand growth forecasts for 2020 have been slashed because of global measures to halt the spread of the virus, prompting the Organization of the Petroleum Exporting Countries to consider its most significant cut since the 2008 financial crisis.

Factories have been disrupted, people have been deterred from traveling, and another business activity has slowed, shrinking demand for fuel.

Saudi Arabia has been pushing OPEC and its allies, including Russia, for a big cut up to 1.5 million bpd for the second quarter of 2020, alongside extending existing cuts of 2.1 million bpd, which expire this month, to the end of 2020.

Riyadh, OPEC’s biggest producer, has struggled to win over Moscow. Russian Finance Minister Anton Siluanov said Thursday he was ready for a drop in oil prices if there was no deal.

Kazakh Energy Minister Nurlan Nogayev, another non-OPEC producer, said talks were only focusing on extending existing curbs to June.

“Moscow perhaps is underestimating that Saudi Arabia may be ready to walk away if it doesn’t get a positive answer,” said Amrita Sen, co-founder of Energy Aspects think-tank.

In a significant development, OPEC members gathered for another informal meeting late on Thursday, and two sources said OPEC would likely recommend that the additional oil cuts of 1.5 million bpd run until the end of 2020, not just until June.

Russia, which joins OPEC+ talks on Friday in Vienna, has been hesitant in the past in the build-up to meetings but has agreed at the last minute.

But OPEC sources have said negotiations with Russia this time have been tighter. Two OPEC sources said on Thursday that, if Russia failed to sign up, there was a risk Saudi Arabia would insist on scrapping OPEC production limits altogether.

But OPEC Secretary-General Mohammad Barkindo sought to play down concerns that cooperation with Russia would falter.

“We have no reason to doubt the continued commitment of the Russian Federation to this partnership,” he said after OPEC ministers held informal talks at a Vienna hotel.

After its formal ministerial meeting, OPEC said the coronavirus outbreak created an “unprecedented situation” with risks “skewed to the downside,” adding that action was needed.

It said ministers had agreed non-OPEC states were expected to contribute 500,000 bpd to the overall extra cut. The group said the existing supply curbs should last to the end of 2020.

Suhail al-Mazroui, energy minister of the United Arab Emirates, said OPEC would not carry the burden of cuts alone, and non-OPEC states had to join in. “We are all in this together. So it’s not going to be us making a decision alone,” he said.

Saudi Arabia, the world’s top oil exporter, is already cutting well beyond its quota under the existing pact, reducing its output by about 10 percent. Russia, with more significant total production, has reduced its output by a fraction of Riyadh’s cut.

After its formal ministerial meeting, OPEC said the coronavirus outbreak created an “unprecedented situation” with risks “skewed to the downside,” adding that action was needed.

It said ministers had agreed non-OPEC states were expected to contribute 500,000 bpd to the overall extra cut. The group said the existing supply curbs should last to the end of 2020.

OPEC holds its next ministerial meeting on June 9.

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