Russia capitulates in oil war
The Kremlin's attempt to show its teeth in the global oil market and sacrifice a partnership with Saudi Arabia in order to strike the U.S. shale industry ended in Russia's capitulation.
On Thursday, following a video conference, the ministers of the OPEC countries reached an agreement to stabilize the global oil market, which was on the verge of disaster due to the coronavirus pandemic that brought down global demand.
To stop the collapse of prices falling to the levels of the late 1990s ($10.5 per Urals), 24 OPEC countries will remove 10 million barrels of daily supplies from the market. At the same time, Russia will reduce production the most, according to the agreement, which has been quoted by sources of the Russian news agency TASS.
As part of the deal, from May to June, Russia and Saudi Arabia will pump 8.5 million barrels per day, reducing production by 23% from the conditional level of 11 million barrels per day.
Russia produces 11.2 million b/d, thus its reduction quota will be 2.7 million b/d.
Saudi Arabia increased production to 12.3 million b/d by April, but in March it pumped 9.8 million b/d. In the previous 13 months, its production was even less - 9.4-9.8 million b/d.
Thus, relative to the levels before the collapse of the OPEC agreement and the beginning of the "price war" Riyadh will reduce production by 1.3 million b/d.
Total OPEC production will fall from 43.8 million to 33.8 million barrels per day. For each country participating in the restrictions, production should decrease by 23%, TASS sources previously reported.
In particular, OPEC countries will reduce production by 6 million barrels per day, other participants of the agreement - by 3.9 million barrels per day.
Also, cuts in oil production are expected from Iraq (reduced production by 1 million barrels per day), UAE (0.7 million barrels per day), Nigeria (0.42 million barrels per day), Mexico (0.4 barrels per day)
According to the document, Iran, Libya and Venezuela still have the right not to cut production due to domestic political crises.
The United States, which the Kremlin insisted on including in the deal, refused to join OPEC. These were Russia and Saudi Arabia who decided to "flood the oil market" and "have to sort it out themselves," The US President Donald Trump said on Wednesday.
The G20 countries will help stabilize the oil market by purchasing oil into the strategic reserve, the head of the International Energy Agency Fatih Birol said on Thursday. Such programs have already been launched by the United States (by 90 million barrels), India (15 million) and China (the volume is unknown).
The new agreement will be in force until the end of April 2021, with the production limit gradually increasing. From July to December, the reduction will be reduced to 8 million barrels per day, and from January 2021 to April inclusive - to 6 million barrels per day.
The next meeting of the OPEC countries will be held on June 10, most likely over video conference.