THE Organisation of Petroleum Exporting Countries (OPEC) and its allies, including Russia, rose at the Ninth Extraordinary OPEC and Non-OPEC Ministerial meeting on Thursday with an agreement to cut oil production by 10 million barrels per day (bpd)
The pact is to stem the crashing oil prices.
The reduction remained the biggest-ever production cut agreed upon by the world-largest oil cartel in history of OPEC +.
It was also learnt that the United States U.S.) has agreed to regulate its production and supply – a condition given by OPEC+ before their meeting on Thursday.
With the agreement between OPEC and Non-OPEC members, the oil war may have ended. On whether the agreement and huge output cut will stimulate the market and make oil prices to return to normal, will be determined in the coming days.
According to oilprice.com analysts, no achievable production cut agreement was ever going to counter the extreme demand destruction triggered by COVID-19.
OPEC has lost its power and, in the coming weeks, markets are going to realise just how dire the situation is.
OPEC Secretary-General Mohammad Sanusi Barkindo said in his opening remarks that the global oil storage has jumped to unprecedented one billion barrels even as demand continues to plunge following COVID-19 pandemic, stressing the need for OPEC+ to agree and stem the plunging price and market oversupply.
Barkindo said: “Over the course of the last few months, COVID-19 has pervaded almost every aspect of life. We see it in the lockdowns initiated by governments across the world; the widespread travel restrictions; business and industry shutdowns; school closures; social distancing measures … I could go on.
“Covid-19 is an unseen beast that seems to be impacting everything in its path. First and foremost this comes in the tragic loss of life; our thoughts and prayers go out to all those affected. There are also no sectors of the economy unaffected by this unprecedented situation.
“Our industry is hemorrhaging; no-one has been able to stem the bleeding. We are already seeing some productions shut-ins, companies filing for bankruptcy and tens of thousands of jobs are being lost. The data and analysis presented and deliberated on today, underscores the scale of the massive challenge before us.
“Only one month ago at the meetings in Vienna, expected 2020 global GDP growth was 2.4 per cent. Today, it is a negative 1.1 per cent. It is incredible to think that the global contraction is far greater than that for the Great Recession of 2008-2009.
“In early March, expected 2020 global oil demand growth was just below 0.1 million barrels per day (mb/d). Today, we are looking at a contraction of 6.8 mb/d, with the second quarter alone close to 12 mb/d and expanding. These are staggering numbers, unprecedented in modern times.
“The outlook for non-OPEC supply growth in 2020 has also fallen by over 1.5 mb/d, although this is nowhere near the drop for oil demand. The OPEC Reference Basket has fallen from $52.7/b in March 2020 to below $20/b in early April, a decline of around 70 per cent.
“We are all now seeing significant less revenue coming into our treasuries. This evidently has major consequences, with the limits of the market being tested on many fronts.
“We are likely to see further breaches in logistical capacity, for ships, pipelines, terminals and processing units. And it is clear that available storage capacity is quickly filling up.
“To put this in some context, the OPEC Secretariat’s assessment of available global oil storage capacity stands over one billion barrels. Given the current unprecedented supply and demand imbalance there could be a colossal excess volume of 14.7 mb/d in the 2020.
“This oversupply would add a further 1.3 billion barrels to global crude oil stocks, and hence exhaust the available global crude oil storage capacity within the month of May.”