WEEKLY ENERGY RECAP: It is too early to prejudge the largest oil output cut in history

WEEKLY ENERGY RECAP: It is too early to prejudge the largest oil output cut in history
The logo of the Organization of the Petroleoum Exporting Countries (OPEC) is seen outside of OPEC's headquarters in Vienna, Austria April 9, 2020. (REUTERS)
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Updated 12 April 2020

WEEKLY ENERGY RECAP: It is too early to prejudge the largest oil output cut in history

WEEKLY ENERGY RECAP: It is too early to prejudge the largest oil output cut in history
  • This sustainable output cut strategy will last until April 2022, starting with a reduction of 10 million bpd during May and June

OPEC+ has made the largest oil output cut in history.
The move points to the alliance seeking to balance the oil market over the medium-term rather than working on a short-lived recovery.
The aim of Saudi Arabia remains to ensure energy security through sustainable pricing and sufficient supplies at a level that stimulates upstream projects.
However, facing such unprecedented headwinds, it is still too early to know if the agreed 10 million barrel per day (bpd) output cut from OPEC+ producers will be sufficient enough to balance the demand deficit — in the short term at least.
That is because there are questions over whether the largest oil output cut in history will offset the estimated 20 to 30 million barrels in oil demand that could be lost as a result of the spread of the coronavirus disease, COVID-19, and the associated impact on global transportation.
Over the medium term, we will likely see a more tangible impact as the cuts gradually absorb the glut as lockdowns are lifted around the world, and as inventories deplete.
This sustainable output cut strategy will last until April 2022, starting with a reduction of 10 million bpd during May and June, then falling to 8 million bpd for the second half of 2020, dropping to 6 million bpd for the remaining 16 months.
It represents a commitment to a full two years of output cuts that will be closely monitored by OPEC’s Joint Ministerial Monitoring Committee (JMMC) and assisted by the Joint Technical Committee (JTC) and the OPEC Secretariat.
Hence, the market should not be underwhelmed by the agreed 10 million bpd production cut — even if there was an earlier expectation of a much larger reduction. What is important is that rivalries have been set aside and a common commitment established to protect the global economy from future turmoil.


IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
Updated 37 min 35 sec ago

IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
  • IMF had rapidly increased concessional financing to emerging market and developing economies

WASHINGTON: The head of the International Monetary Fund on Monday said the global lender needed more resources to help heavily indebted countries, citing a highly uncertain global economic outlook and a growing divergence between rich and poor countries.
IMF Managing Director Kristalina Georgieva, who has long advocated a new allocation of the IMF’s own currency, Special Drawing Rights (SDRs), said doing so now would give more funds to use address both the health and economic crisis, and accelerate moves to a digital and green economy.
Under outgoing President Donald Trump, the United States, the IMF’s largest shareholder, has blocked such a new SDR allocation, a move akin to a central bank printing money, since it would provide more resources to richer countries since the allocation would be proportionate to their shareholding.
Swedish Finance Minister Magdalena Andersson, the new chair of the IMF’s steering committee speaking at an online news conference with Georgieva, said it was clear the need for liquidity remained great, and she would consult with member countries on options for expanding liquidity.
Andersson, the first European to head the International Monetary and Financial Committee in more than 12 years and the first women, started her three-year term in the role on Monday.
Georgieva said the IMF had rapidly increased concessional financing to emerging market and developing economies, including through donations by member countries of some $20 billion in existing SDRs. That would continue to play an important role, but further steps were needed, she said.
“It will continue to be so important, even more important, for us to be able to expand our capacity to support countries that have fallen behind,” Georgieva said.
She said a new SDR allocation had never been taken off the table by IMF members, she said, adding that some members continued to discuss it as a possible move. A possible sale of gold from the IMF’s reserves would have “some opportunity costs” for the IMF, but would be up to members, she said.
She said she expected the Group of 20 major economies to extend the current moratorium in official debt service payments by the poorest countries, now slated to end in June, but much would depend on the pace of vaccinations in coming months.