Oil prices have just begun to recover, so OPEC countries and Russia have decided that it is not the time to give up and ease restrictive measures. Therefore, in order to keep the balance in the market, which has been affected by the coronavirus pandemic, countries will continue to reduce oil production for another month, despite the fact that oil prices are close to $40 per barrel.
In general, OPEC countries cut oil production by almost 10 million barrels per day. Saudi Arabia and Russia will undertake most of the cuts. However, representatives of these countries require strict compliance with the agreement from other oil producers.
UAE Energy Minister Suhail Al Mazroui said after the meeting that OPEC and OPEC + countries unanimously decided to prolonge the current reduction until the end of July. US Secretary of Energy Dan Bruillett, in turn, noted that oil demand continues to recover and many countries are opening their economies. This is very important for the economy of the whole world.
OPEC + countries are going through tough times. On the one hand, it is necessary to support the oil industry. On the other hand, they should avoid a jump in prices under conditions when the global economy is on the verge of a deep recession.
Jason Bordoff from the Center on Global Energy Policy at Columbia University believes that by renewing the agreement Saudi Arabia and Russia want to avoid the hostility that brought down oil prices in March. This would ensure stability in the global market.
OPEC countries still believe that a reduction in global oil demand by 9 million barrels per day this year would put pressure on government revenues in oil-producing economies. In April, OPEC + countries reduced volumes by 9.7 million barrels per day, or by almost 10% of the global production. Initially, countries had planned to tighten oil output to 7.7 million barrels per day, or by about 8%, towards the end of the year as global demand fell by a third.
Today, oil demand is rising, many countries are lifting quarantine measures. Therefore, Saudi Arabia will cease to over fulfill the plan for reducing beyond the agreement as early as June.
Last Friday, the president of the United States thanked Russia and Saudi Arabia for helping save the US energy industry, which, he said, could become “worthless”. Most US oil wells that were shut down after the April fall in prices are resuming functioning step by step.
Besides, global oil consumption is gradually increasing as restrictions in North America and Europe are weakening. At the same time, in China, domestic demand has almost returned to the pre-crisis levels.
However, Prince Abdulaziz bin Salman, the Oil Minister of Saudi Arabia, stated that the goal had not been achieved yet and it is extremely important to comply with the agreement.