Page 48 - BNE_magazine_05_2020

48 I Eastern Europe bne May 2020
OPEC and its allies have agreed a 9.7mn barrels per day cut in production, or just under 10% of global production, but with demand down by a third analysts say its is not enough to lift prices
OPEC+ cuts deep into global supply, but not deep enough
bne IntelliNews
What? The OPEC+ group is set to cut global oil production by 10% to support prices. Why? The COVID-19 crisis has caused unprecedented oil demand destruction. What next? The lack of support from other producers could cause the pact to collapse.
An historic deal
OPEC and its allies in the larger OPEC+ group met for emergency talks via video link on April 9, to discuss a response
to the COVID-19 crisis. Ahead of the negotiations, the oil cartel’s secretary general, Mohammed Barkindo, warned that the industry faced a “horrifying” outlook.
“COVID-19 is an unseen beast that seems to be impacting everything in its path,” he said in opening markets, noting that no areas of the economy were unaffected by the pandemic.
“For the oil market, it has completely up-ended market supply and demand fundamentals since we last met on March 6,” he said. “Even in the first week of March the outlook looked relatively bleak, but in just over one month it has changed beyond all recognition. The
OPEC and its allies have finalised an historic deal to take 9.7mn barrels per day (bpd) of oil supply off the market – just under 10% of global production – to help
the industry through its worst crisis
in a century.
Following emergency talks on April 9, the group originally proposed a greater reduction of 10mn bpd, but Mexico dragged its heels in committing to its share of the cuts. The deadlock was ended during a second round of talks
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on April 12. Under the new agreement, Mexico will remove only 100,000 bpd of supply, instead of the 400,000 bpd
it had initially been asked to cut.
While OPEC+'s reduction will ease
the unprecedented supply glut caused by the coronavirus (COVID-19) pandemic, critics say it goes nowhere near far enough. Russia and Saudi Arabia have called on the US and other producers not party to the deal to cut global output by a further 5%. But they are yet to secure any firm promises on this score.