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Jeddah - Yasmine El Tohamy - Dubai: The OPEC+ meeting hosted from Vienna turned into a night of high drama punctuated by “virtual” farce as delegates struggled to get a final deal to slash oil output by an unprecedented amount.
The heavy lifting of the meeting — the need for a 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 and a member of the Russian OPEC negotiating team, 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.
The broad outline of a deal began to emerge: A cut of 10 million barrels per day by OPEC + running for two months starting in May; reductions of 8 million barrels from June until the end of the year; followed by 6 million barrels reduction until the spring of 2022.
Still to be decided is the important issue of what baseline level of production the cuts are calculated from, but it is expected that Saudi Arabia will make the biggest contribution, perhaps cutting more than 3 million barrels of output.
That was indeed 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.
“Almost” because of Mexico, which threw a late-night spanner in the works by refusing to sign up to a deal beyond cutting a mere 100,000 barrels from its own production. There was talk of sharing out surplus between OPEC+ members to get Mexico’s signature to a deal; the Americans amusingly suggested they would take the Mexican excess crude; even a half-serious threat that Mexico should be expelled from OPEC.
After this interlude was the high drama of a phone call between King Salman of Saudi Arabia, President Putin of Russia and American President Donald Trump. The leaders “stressed the importance of cooperation between oil producing nations to maintain stability of energy markets and support growth in the global economy,” which is a good omen ahead of the meeting of G20 energy ministers scheduled for Friday mid-day Vienna time.
The G20, under Saudi Arabia's presidency will bring in the third leg of the global oil industry which had not been present at the OPEC+ talks — the US Energy secretary Dan Brouillette has agreed to take part in the G20 energy summit, and while the Americans have ruled out any formal cuts as part of the process, they will be keen to highlight reductions in capital expenditure and a “natural” decline in shale production — by which they mean the increasing risk of bankruptcy to shale companies.
Some analysts believe that, perhaps with some sleight of hand, there could still be a headline number of 15 million barrels of cuts, which would satisfy the expectations President Trump declared last week.
Whether it satisfies the oil markets is still open to question. Despite the “historic” agreement between Saudi Arabia and Russia, and the prospect of some American buy-in to follow, the price of Brent crude, which has been rising most of last week in anticipation of the OPEC+ meeting, fell by nearly 5 percent to just over $32 a barrel.
Traders were surprised by the gloomy tone of Mohammed Barkindo, the OPEC secretary general, in his preamble to the Vienna virtual meeting. With some experts estimating that global demand is currently down by more than 30 percent, Barkindo said that the fundamentals of supply and demand in oil were “horrifying.”
Paul Young, head of energy products at the Dubai Mercantile Exchange, told Arab News: “The market initially liked Russia coming back into the fold, but focus now switches to the wider G20 group and the need for firm commitments from non-OPEC+ producers to bring the oil markets back into balance.”
But even if the final level of cuts does manage to exceed 10 million barrels, many experts doubt that will be enough to offset huge demand loss.
Anas Al-Hajji, managing partner of Energy Outlook Advisers, 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.”
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