Will the "OPEC +" deal save the troubled oil market?
11:45 - 01/05/2020
Information / follow-up ..
The OPEC + countries, which control about 40% of global oil production, begin on May 1 to reduce production by about 10 million barrels per day, to support the tumbling oil markets.
The scale of the cuts is unprecedented, as each country participating in the production cut agreement, including Russia, must reduce production by about 20% in May and June of 2020.
The agreement, which was concluded by the group on April 12, will last for two years and includes several stages. In the first, production will be reduced by 9.7 million barrels in May and June of 2020, while in the second half of this year, production will be reduced by 7.7 million barrels per day. From the beginning of 2021 to the end of April 2022, the group will reduce production by 5.8 million barrels per day.
Experts believe that all parties involved in the agreement will have to fully comply with its terms at this crucial moment in the oil market.
However, the reduction in May, which is equivalent to 10% of global production, may not be sufficient to absorb the abundant supply, as the Corona pandemic caused the largest decline in energy consumption in the world in history.
According to the International Energy Agency, oil demand decreased last April by 23 million barrels per day.
Experts believe that the situation in the oil market will not change at the beginning of the application of the deal because of the collapse of oil demand significantly.
"We should not expect any miracle in prices. May and June will be black months for the oil industry," Konstantin Simonov, head of the National Energy Security Corporation, told RT.
He explained that at the present time the real decline in demand exceeds the proposed cuts, which hinders the balance of the oil market, but the situation would have been much worse without the "OPEC +" cuts.
The expert expected the global oil market to recover once the quarantine measures were eased. He added: "While the (OPEC +) agreement was described as a truce ending the oil price war between Russia and Saudi Arabia, the conflict did not end, as it was reported that Riyadh did not stop providing discounts to its customers on oil prices."
As other analysts say, OPEC and its allies in the production cut agreement may have to make further cuts, as this measure failed to help the oil market recover.
According to Lipow, producing countries will have to increase cuts if oil inventories continue to rise due to falling demand. End / 25