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OPEC, Russia, Mexico and other oil-producing countries start a gigantic cut in the supply of crude oil starting this Friday with the aim of raising “petro-prices”, which plummeted in April to record lows due to the lack of demand from the “black gold” in times of the coronavirus.
The hope of the 13 partners of the Organization of Petroleum Exporting Countries (OPEC) and its 10 independent allies is that the reduction of joint pumping by 9.7 million barrels per day (mbd) -about 10% of world production- rebalance a market overwhelmed by supplies that no one wants and that threaten to exceed storage capacity.
According to the agreement sealed on April 12 by OPEC + ministers (OPEC and allies) in a conference call, withdrawals will remain limited for two years although they will rise moderately from July, in line with a gradual increase in the consumption of “gold black “scheduled for the second half of the year.
Thus, the reduction of 9.7 mbd will be in force until June 30, but it will be 7.7 mbd during the rest of the year and 5.8 mbd between January 1, 2021 and April 30, 2022. .
These cuts can be reviewed, if necessary, at the OPEC + ministerial meeting convened for June 9-10.
OPEC partners Venezuela, Iran and Libya have been exempt from the commitment, because they have been suffering involuntary declines in the activities of their oil industries for months, hit by internal conflicts, crises and sanctions.
Mexico also achieved an exception by cutting only 100,000 of the 400,000 bd that would have corresponded to it, after an unusual intervention by the President of the United States, Donald Trump, promising that his country will take care of the reduction of another 250,000 on behalf of the neighbor of the south.
However, four days after the agreement was sealed, Mexico announced that it will only maintain the cut in the first phase, and will stop doing so from July.
Crude oil prices closed April amid extreme volatility, especially in the US, where Texas intermediate oil (WTI) first entered negative territory on the 20th of that month, when operators had to pay in exchange for They will remove the barrels from the contracts that expired, as they had nowhere to store them.
The WTI ended that day at -37.63 dollars, with a collapse of more than 300% in a single day.
At the close of the session on Thursday, it was trading at $ 18.84, with a rebound of 25.1% compared to the previous day, while Brent also rose 11.85% the day before, up to $ 25.30 /barrel.
According to consulting firm CMarkits, the positive trend started towards the end of last week, driven “by the expiration of contracts for delivery in May and the movement towards contracts in June”, and the expectation of implementation of the OPEC + pact.
The announced measures to gradually revive the economy in the United States and Europe after its almost complete stoppage to stop the COVID-19 pandemic also helped.
In addition, other producers, such as Norway, also reported limitations in their pumping and the International Energy Agency (IEA) said they expect “chaotic” closings of oil fields, all of which will deepen the reduction in supply.
And it is that the current “petro-prices”, although they have recovered part of the land lost a few weeks ago, are still, far from the more than 60 dollars at the beginning of the year, at their lowest level since the beginning of the century, below the cost of production. of the most sophisticated extractions.
Amid great uncertainty, the hope for countries highly dependent on their oil revenues is that there will not be a second wave of coronavirus infections globally and that the crisis will be temporary.
OPEC estimates that the price of a barrel could then be around $ 40 in the second half of the year, according to the organization’s current president and Algerian energy minister, Mohamed Arkab.
“The world economy will not be paralyzed for long,” Arkab predicted last weekend in an interview with Algerian national radio.
He agreed on this assessment with his Russian counterpart, Alexandr Novak, who in a statement urged not to dramatize the situation.
However, the Paris-based IEA again warned on Thursday of the difficulty of forecasting the impact of the current crisis, unmatched by previous ones.
Restrictions on population movement “have caused unprecedented decreases in demand, the speed and magnitude of which greatly exceed the normal flexibility of the supply market,” the agency stressed, after estimating that oil consumption will fall this year by 9 %, down to its lowest level since 2012.
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