DUBAI: Oil-producing countries represented by energy ministers at the “virtual” G20 Summit under Saudi Arabia’s presidency were getting close to the headline figure of 15 million barrels of cuts flagged up by US President Donald Trump last week, but now they face a challenge to sell it to skeptical oil markets.
The 15 million figure was made up of 10 million from the revived OPEC+ alliance led by Saudi Arabia and Russia, with the balance coming from the big economies of the G20 such as the US, Canada and Brazil, which are also oil exporters.
But in the face of a collapse in global demand for oil because of the coronavirus pandemic, some experts are already questioning whether even that unprecedented amount would be enough to get the oil price up again.
Big global oil markets were closed on Friday, but late Thursday trading showed Brent crude down 4.79 percent at $32.03, even after the broad outlines of the OPEC+ deal had emerged.
Chris Midgely, head of analysis for S&P Global Platts, said: “The current proposed 10 million barrels per day may be too little too late as it will have limited impact on April production, and only if sustained from May for the balance of the year might we avoid hitting tank tops.”
Other oil experts were even more forthright. Anas Al-Hajji, managing partner of Energy Outlook Advisers in Texas, said: “Trump has made a big mistake blaming Saudi Arabia and Russia. He will be shocked when oil prices remain low even if we have a 10-million-barrel cut.”
But the OPEC+ cuts were an impressive show of unity by the alliance. Ten full members of the Organization of the Petroleum Exporting Countries (OPEC) agreed to each cut 23 percent from their total oil production, taking out more than 6 million barrels of oil per day from global supply.
The same number of non-OPEC countries also agreed 23 percent cuts, removing nearly 4 million barrels.
The two biggest cutters on each side of the OPEC+ alliance were Saudi Arabia and Russia, both of which offered to cut just over 2.5 million barrels from an assumed production level of 11 million barrels per day — a theoretical amount decided upon to enable a compromise. The Kingdom pumped more than 12 million barrels earlier this month.
The 10-million reduction will apply for May and June, followed by 8-million-barrel cuts until the end of the year, and 6 million barrels until the spring of 2022.
It was an unprecedented commitment by the oil producers. To put it in context, the early March OPEC+ meeting fell apart — sparking the price war — because of disagreement over proposed extra cuts of 1.5 million barrels. Now a reduction many times that has been waved through almost unanimously.
The OPEC+ meeting hosted from Vienna turned into a late night of high drama, punctuated by “virtual” farce as delegates maneuvered to get to the final historic deal.
The heavy lifting of the meeting — the need for rapprochement between Saudi Arabia and Russia if any headway was to be made in tackling the huge global oversupply of crude — was accomplished fairly efficiently.
The behind-closed-doors meeting of delegates had not even begun when Kirill Dmitriev, CEO of the Russian Direct Investment Fund, declared a “historic moment” in the history of oil. “We, working closely together with the US, can bring stability back to global energy markets,” he told Arab News.
For a while it looked as though the deal would be blocked by Mexico, which was refusing to commit to 400,000 barrels of cuts, in a move that could have scuppered the whole agreement.
But after a reported phone call between Trump and Mexican President Lopez Obrador, some kind of deal with Mexico looked certain.
That was the second time that Trump had got involved in the OPEC+ negotiations. He also spoke to King Salman and Russian President Vladimir Putin, in a call that “stressed the importance of cooperation between oil-producing nations to maintain the stability of energy markets and support growth in the global economy,” the Saudi Press Agency reported.
It remains to be seen if this positive sentiment can be reflected in a recovery in the oil price once markets open again after the weekend.
OPEC Secretary-General Mohammed Barkindo underlined the size of the challenge facing global energy markets from the pandemic. “The fundamentals of supply and demand in oil are horrifying,” he said at the OPEC+ meeting.
With crude down more than 50 percent this year, and no certainty when global economies will begin to get back to pre-coronavirus levels, it may take a long time for the hard work done by OPEC+ and the G20 to show through.