Today a virtual meeting of oil producers and exporters will be held. Originally, an extraordinary OPEC conference was planned on Monday, April 6. However, then no agreement could be reached. Will it be reached today? The talks are about cutting the production of crude oil.
The outbreak of the coronavirus around the world has caused the economy to almost stand still. Oil demand collapsed and the OPEC + alliance (14 OPEC countries plus Russia), which had previously tried to balance the oil market by cutting production, collapsed also. Only the United States benefited by increasing its market share and becoming the largest oil exporter in the world. The idea of further balancing the oil market with the development of the epidemic did not appeal to Russia, which at the beginning of March broke off talks on this matter. We have finally seen a huge drop in prices, which has ruined the US shale industry.
A month has passed and now the leading producers and exporters of crude oil want to somehow fix what was broken in March. However, OPEC sources state that the United States must also participate in the current cut in production. It must be a globally coordinated action where everyone will have their share. Meanwhile, a group of Republicans in the US House of Representatives told the Saudi prince on Wednesday that economic and military cooperation between the two countries is under threat unless the kingdom helps stabilize prices by reducing oil production. Americans are playing hard, adding that production is still decreasing in the US, according to the US Department of Energy.
Russia announces that it is ready to reduce production by 1.6 million barrels a day under a deal between major producers. In turn, the Algerian oil minister told that he would discuss a huge cut that could reach 10 million barrels a day. Mohamed Arkab, who is also the president of OPEC, added that the upcoming meeting will undoubtedly be fruitful and, thanks to the measures taken, aim to restore market balance.
According to the Paris-based agency IEA, because of the pandemic and travel ban that affects as many as 3 billion people, oil demand has fallen by around 20 million barrels a day. Consequently, cutting production by 10 or 15 million barrels a day will be only a partial solution to the problem of oversupply with the shrinking possibilities of further oil storage.
The meeting of oil producers was scheduled for 16:00 CET.
Daniel Kostecki, chief analyst at Conotoxia Ltd. (Forex Cinkciarz.pl service)
The above comment is not a recommendation within the meaning of the Regulation of the Minister of Finance of October 19, 2005. It has been prepared for information purposes and should not be the basis for making investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions made on the basis of the information contained in this commentary. Copying or reproduction of this document without the written permission of Conotoxia Ltd. is prohibited.
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