After much speculation, OPEC+ has finally confirmed what the group agreed to at its latest webinar meeting, which lasted for several hours.
In a press release posted on the organization’s website, the group outlined that the following cuts were conditional on the consent of Mexico, which still hasn’t agreed to them.
An overall crude oil production reduction of 10 million barrels per day (MMbpd) from May 1 to June 30, followed by an 8MMbpd cut from July 1 to December 31 and a 6MMbpd cut from January 1, 2021, to April 30, 2022. The baseline for the cuts is the oil production of October 2018, except for the Kingdom of Saudi Arabia and the Russian Federation, which both have the same baseline level of 11MMbpd.
The extension of the agreement, if it does go through, will be reviewed during December 2021.
Commenting on the deal, Rystad Energy said the proposed 10MMbpd cut for May and June will keep the world from physically testing the limits of storage capacity and save prices from falling into a deep abyss but added that it will still not restore the desired market balance.
“Even if a 10MMbpd cut is agreed upon, or even in the best-case scenario 15MMbpd if the U.S., Canada, Norway and Brazil join forces, an excess of supply of the magnitude of 5-10MMbpd will remain, and will need to be stored,” Rystad stated.
Wood Mackenzie’s Ann-Louise Hittle said a 10MMbpd cut would be “very supportive” of price over the second quarter.
“Even a 5MMbpd reduction would see oil prices in the low $30s. It would ease pressure on storage and stem the steep price collapse we saw in March,” Hittle said in a statement sent to Rigzone.
“A 10MMbpd reduction may seem small compared with some very high demand loss estimates, but if the curbs are implemented, it would slow the build-up in storage and avoid the surplus of supply over the second quarter, when the Covid-19 shutdowns are the extensive and demand lowest,” Hittle added.
To contact the author, email andreas.exarheas@rigzone.com
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