Three members of OPEC and Russia are in favor of an extension of the current oil production cuts agreed by OPEC+ in April this year, Iraqi news agency Shafaq has reported, citing Algeria’s Energy Minister, Abdelmadjid Attar.
According to the report, Attar said the oil market was facing a perilous situation because of the resurgence in Covid-19 cases. In response to these developments, Saudi Arabia, Iraq, Russia, and Algeria had backed an extension of the current rate of production cuts, standing at 7.7 million bpd.
Iraq’s presence in the group of four supporters of extended cuts is somewhat surprising given earlier reports that suggested OPEC’s number-two exporter was among three cartel members reluctant to continue cutting. The other two were the UAE and Kuwait. Kuwait and Iraq have since denied they were against further cuts.
Yet the situation, besides dangerous for oil producers, is quite dynamic. The most recent reports suggest that the producer group may actually be mulling over even deeper cuts in its production.
The Wall Street Journal reported yesterday that Saudi Arabia was among the countries considering reversing the April agreement and not just extending the 7.7-million-bpd cuts but deepening them in response to the latest price slide that has the makings of a longer trend.
At the moment, crude oil prices are about half of what the Kingdom and the cartel’s largest producer need to balance its budget, and the rest of the Middle Eastern producers are no less reliant on their oil revenues. Yet with Libya’s oil production rising fast, hitting 800,000 bpd this month, the urgency to act has become even stronger for OPEC and its partners in the output reduction agreement.
Earlier this week, the Energy Information Administration said the pandemic and the oil price slump it caused would crash OPEC’s export revenues to the lowest in 18 years, at $323 billion. This compares with $595 billion earned from oil exports in 2019.
By Irina Slav for Oilprice.com
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This will enable OPEC+ to judge the market fundamentals by then better. Furthermore, the second wave of the pandemic might recede by then with the possibility of some anti-COVID vaccines becoming available by then.
While an extension of the current cuts beyond January 2021 is still a bitter pill to swallow for some members of OPEC+, it is much preferable to deepening the cuts as Saudi Arabia is reported by the Wall Street Journal to be considering.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London