Yemisi Izuora
Members of the Organization of Petroleum Exporting Countries, OPEC and OPEC+ group are discussing the idea to implement oil production cuts for at least three months from May to July, Russian news agency TASS reported on Tuesday, citing two sources at OPEC.
“Three months. I believe the deal can be made from May because April deliveries have already been scheduled,” a high-ranking source in OPEC told TASS, while another source noted that a potential production cut would be “definitely longer than until June.”
Russia’s energy ministry has received an invitation from OPEC to take part in Thursday’s video conference, and Russia confirms it will take part in that meeting, an official at the energy ministry told TASS on Tuesday.
The leaders of the OPEC+ group, Saudi Arabia for OPEC and Russia for non-OPEC, are reportedly ready to negotiate a massive global production cut amid sinking demand, despite a bitter weekend spat between the former allies about who ditched whom in the OPEC+ talks.
A video meeting between Saudi Arabia, Russia, and other major oil producers, including representatives from the U.S., was slated to be held on Monday.
However, the meeting was postponed for Thursday after the Saudis and the Russians accused each other of dumping the other in the OPEC+ alliance that had tried to manage oil supply and oil prices for the past three years.
Both producers are now signaling that they are ready to talk but are pointing out that any massive cut, 10 to 15 million barrels a day as touted by U.S. President Donald Trump, should involve the United States, too.
OPEC hasn’t asked President Trump to find a way to ask U.S. oil companies to collectively cut production, the President said on Monday.
“I think it’s happening automatically but nobody’s asked me that question yet so we’ll see what happens,” President Trump said at a press briefing, referring to U.S. oil production.
Analysts say that even if a larger so-called OPEC++ group – involving OPEC+ plus the U.S., Canada, Brazil, Norway, and other producers not part of OPEC+, were to agree to a huge cut of 10 million bpd, this will still be much lower than the demand loss expected in Q2 and will not go far to prevent global storage filling to the brim by mid-May.
Corroborating the report, JP Morgan analysts also said OPEC and Russia this week are likely to agree to cut oil output by about 4.3 million barrels per day (bpd).
Morgan analysts said in a note on Tuesday, predicted a big increase on their recent cuts of 1.7 million bpd but only a fraction of the demand lost due to the new coronavirus.
Despite U.S. President Donald Trump’s calls for cuts of 10 million bpd or more, OPEC+ are expected to agree on a “soft cut” of around 4.3 million bpd versus the group’s output in April 2020, JP Morgan said.
While clearly not enough to offset the demand drop, the cut would materially lessen the risk of storage being filled and offer a smoother route to working off inventories,” the Wall Street bank said in a note.
Under the cut, Saudi would reduce output by 2.2 million bpd, the United Arab Emirates by around 1 million bpd, Iraq by around 500,000 bpd, Kuwait by 300,000 bpd and Russia by 300,000 bpd.
“The Saudis want to keep pressure on oil prices in order to gain a larger market share and concessions from Washington,” said Christyan Malek, head of European oil and gas research at JP Morgan.
The OPEC and its allies including Russia, a group known as OPEC+, are planned to meet on Thursday to discuss output cuts after global oil demand and prices sunk due to the impact of the coronavirus and pledges to increase output from Moscow and Riyadh.