Page 10 - RusRPTMay20

barrels should leave the market, reports The Bell. The immediate cuts are to run for two months, but the parameters of the whole deal is set over two years to May 2022, with no revision to the terms until December 2021, according to the agreement.
The participants agreed to reduce production by 23% compared to the reference production levels set in October 2018. As a result the production in May-June 2020 will decline by 9.7mn barrels per day from that reference point, between June to December this year by 7.7mn, and between January 2021 and April 2022 by 5.8mn.
If you count from the March production, Russia will have to introduce bigger cuts, cutting production by 1.8mn bpd from 10.3mn bpd, and Saudi Arabia cutting by 1.3mn from 9.8mn.
This means that Russia will have to reduce production by more than Saudi Arabia proposed in at the last meeting in early March: then Russia refused an offer to increase its cuts from 300,000 bpd to 600,000 bpd.
Mexico was the hold out, refusing to cut production by the proposed 400,000 and would only agreed to cut by 100,000 as it is concerned over the financial health of its national oil company Pemex. However, US president Donald Trump agreed to cover Mexico’s production cuts by adding an extra 300,000 of cuts to its quota.
Trump, concerned for job losses in the US oil and gas industry, played the role of the main negotiator between Russia, Saudi Arabia and other countries in the transaction. After signing Trump, Russian President Vladimir Putin and the king of Saudi Arabia talked on the phone, congratulating each other and agreed on further cooperation.
Too little, too late and cheating Saudi Arabia, the UAE and Kuwait undertook to voluntary additional reduction of another 2mn bpd, while the International Energy Agency will coordinate oil purchases for strategic reserves of different countries.
Non-OPEC+ G20 exporting countries (Canada, Brazil, Norway, and US) promised a reduction of production by another 3.7mn bpd, but this is also a voluntary reduction. That leaves a loophole open as private companies in these countries are under no obligation to cut production. And that is the problem as these companies are expected to “cheat.” Goldman Sachs called the agreement “historic, but insufficient” and says prices will drop to $20. The bank believes that the actual reduction in production compared to the first quarter will not exceed 4.3mn barrels per day if the main OPEC countries fulfill their obligations by 100% and the rest by 50%.
And even the massive 10mn bpd cuts are not enough to compensate fro the 19mn bps fall in demand in the second quarter of this year, caused by the stop-shock of the coronavirus (COVID-19) pandemic, according to Goldman Sachs. However, the bank left its forecast for oil prices for 2021 unchanged at $51 arguing that after the epidemic is over in the third quarter demand will bounce back, reducing the fall in demand dramatically.
Still, the new OPEC++ deal, as some have dubbed it, will put a floor under prices and restores some calm to the market. But the market’s reaction reflects the deep concerns traders still have over the state of the global economy. Oil and the ruble are likely to remain cheap until the end of the pandemic effects, which will last for the rest of the year, according to most economists.
10​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com