A ‘very real concern’ OPEC+ may overtighten the oil market this year, analyst says
Reduction of world oil production may be 20%
OPEC and other interested countries have negotiated a record cut in oil production to 20 million barrels per day, which is about 20% of world supplies. These measures are aimed at supporting prices eroded by the pandemic.
Negotiations have been complicated by tensions between Saudi Arabia and Russia, the world’s two largest oil producers. However, according to sources, the parties managed to overcome their differences..
Global fuel demand dropped by as much as 30 million barrels per day, or 30% of total supply, as coronavirus measures halted aircraft, reduced vehicle use and curbed economic activity. Thus, even a reduction of 20 million barrels per day looks insufficient..
Brent crude oil prices hit an 18-year low in March, hitting the budgets of oil-producing countries and the expensive US shale oil industry..
Donald Trump said last week that the deal he struck with Saudi Arabia and Russia could lead to a cut of 10 to 15 million barrels per day. It should be noted that even this range of reduction will be unprecedented.
The largest one-off cut previously agreed only by OPEC was 2.2 million barrels. It happened during the 2008 financial crisis.
Kremlin spokesman Dmitry Peskov said the new cut deal «hardly possible» without the participation of other market participants.
The US was invited to the videoconference, but it is not yet clear if they eventually joined the discussion.. Washington previously said that American production is gradually falling due to low prices.
Initially, it was not clear at what level Moscow and Riyadh were proposing to agree on any reductions. The Kremlin said they should be based on the numbers reached in the first quarter. Saudi Arabia believes baseline should be considered from April.
Goldman Sachs and UBS predict that even large cuts will not be enough, and black gold prices could fall to $ 20 per barrel or less.
It is known that the demand in the United States for gasoline fell by 48% to 5.1 million barrels per day.
So far, Trump has shown no sympathy for the cut. Instead, he said he had many options if Saudi Arabia and Russia did not cut supplies.. US senators urged the White House to impose sanctions on Riyadh, withdraw US troops from the kingdom and impose a duty on Saudi oil.
The Russian news agency TASS reported that any cuts that are agreed upon could last three months starting in May this year..