Opec+ debates biggest-ever oil cut as virus destroys demand

Updated 04 Apr 2020

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The meeting of Opec and allies such as Russia has been scheduled for Monday. — AFP/File
The meeting of Opec and allies such as Russia has been scheduled for Monday. — AFP/File

DUBAI: The Organisation of the Petroleum Exporting Countries (Opec) and its allies are working on a deal for an unprecedented oil production cut equivalent to around 10 per cent of global supply, an Opec source said after the US president called on producers to stop the market rout caused by the coronavirus pandemic.

The meeting of Opec and allies such as Russia has been scheduled for Monday, April 6, the Azeri energy ministry said, but details were still thin on the exact distribution of production cuts.

Oil prices have fallen to around $20 per barrel from $65 at the start of the year as more than 3 billion people went into a lockdown because of the virus, reducing global oil demand by as much as a third or 30 million barrels per day.

US President Donald Trump said on Thursday he had spoken with both Russian leader Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and they agreed to reduce supplies by 10-15m bpd out of a total global supply of around 100m bpd.

But the International Energy Agency warned on Friday that a cut of 10m bpd would not be enough to counter the huge fall in oil demand. Such an output cut would still result in a 15m bpd stock-build in the second quarter, said Fatih Birol, the head of the agency.

Trump said he did not make any concessions to Saudi Arabia and Russia, such as agreeing to a US domestic production cut – a move forbidden by US antitrust legislation.

Some US officials have suggested US production was set for a steep decline anyway because of low prices.

“The US needs to contribute from shale oil, an Opec source said. Russia has long expressed frustration that its joint cuts with Opec were only lending support to higher-cost US shale producers.

A second Opec source said any cut in excess of 10m bpd must include producers from outside Opec+, an alliance which includes Opec members, Russia and other producers, but excludes oil nations such as the United States, Canada, Norway and Brazil.

The second source added that Opec+ was watching the outcome of a meeting between Trump and oil firms later on Friday and that a final figure on cuts depended on participation by all oil producers.

Jason Kenney, the premier of Alberta, Canada’s primary oil-producing province, said on Thursday that Alberta was open to joining a production-cut deal.

Oil prices recovered from the lows of $20 per barrel this week with Brent trading near $33 per barrel on Friday, still less than half its $66 closing level at the end of 2019.

Published in Dawn, April 4th, 2020