Opec backs biggest oil output cut since 2008 crisis, awaits Russia

Updated 06 Mar 2020

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Saudi Arabia has been pushing Opec and its allies for a big cut up to 1.5m bpd for the second quarter of 2020. — AFP/File
Saudi Arabia has been pushing Opec and its allies for a big cut up to 1.5m bpd for the second quarter of 2020. — AFP/File

VIENNA: 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.

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.

The oil demand outlook has already been pummelled by global measures to halt the spread of the virus, prompting the Organisation of the Petroleum Exporting Countries (Opec) to consider its biggest cut since the 2008 financial crisis.

Demand growth forecasts in 2020 have been slashed as factories have been disrupted, people have been deterred from travelling and other business activity has slowed.

Saudi Arabia has been pushing Opec and its allies, including Russia, for a big cut up to 1.5m bpd for the second quarter of 2020, alongside extending existing cuts of 2.1m 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 on 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.

Russia, which will join talks between Opec+ states on Friday in Vienna, has been hesitant in the past in the build up to meetings but agreed at the last minute.

But Opec sources have said negotiations with Russia this time have been tougher. 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.

Opec said in a statement after its ministers met that the coronavirus outbreak created an “unprecedented situation” with risks “skewed to the downside”, adding that action was needed.

It said ministers agreed to an extra supply cut of 1.5m bpd until June, out of which non-Opec states were expected to contribute 500,000 bpd. The group said this was in addition to extending existing supply curbs to the end of 2020.

Published in Dawn, March 6th, 2020