After a week-long marathon of calls between world leaders and video conferences featuring dozens of energy ministers, it was the moment the 2020 oil price war finally ended.
From Villahermosa, a city near Mexico’s largest crude terminal, Energy Minister Rocio Nahle raised her voice. “Your Royal Highness, Mexico has already agreed. And now I would like to ask you: ‘Do you agree with these terms?’”
In Riyadh, Saudi Energy Minister Prince Abdulaziz bin Salman nearly chuckled as he looked at a wall of video feeds showing his counterparts around the world. “I go with the consensus. I agree,” he replied.
At that moment, the OPEC+ alliance sealed the largest-ever coordinated production cut, removing about a tenth of global supply. The historic deal had almost been derailed by a fight between Saudi Arabia and Mexico’s populist government, forcing President Donald Trump to step in and broker a face-saving solution.
Prince Abdulaziz declared himself sleepless and exhausted, but triumphant nonetheless.
“We have demonstrated that OPEC+ is up, running, and alive,” he told Bloomberg News in an interview minutes after he clinched the agreement. “I’m more than happy.”
For the past month, Saudi Arabia had pumped every possible barrel for sale at rock-bottom prices, punishing Russia for refusing to support deeper OPEC+ output cuts in early March. Now, Moscow and Riyadh will both reduce daily production by millions of barrels, spearheading a global agreement between almost all the world’s major oil producers to rein in output.
But the deal will only dull the pain, not end the crisis.
No quick solution
The market is likely to remain overwhelmed for months to come by the catastrophic collapse in demand caused by the lockdowns designed to slow the spread of the coronavirus through some of the world’s biggest economies.
“The OPEC+ agreement will not prevent sharp inventory builds in coming months, and near-term oil prices in the physical market will likely remain under pressure,” said Martijn Rats, oil analyst at Morgan Stanley.
The deal between the Organization of Petroleum Exporting Countries and its allies will remove nearly 10 million barrels a day from the market through deliberate cuts. In addition, the group is counting involuntary declines in the production of the U.S., Canada, Brazil and several other countries, as companies reduce drilling activity due to low prices and weak demand.
OPEC+ officials, using some creative accounting that also includes output drops in Venezuela, Iran and Libya, which are exempt from making cuts, said that as much as 20 million barrels a day will over time leave the market — 20% of global production.
For the time being, the world will need to be content with the 10 million barrels a day from OPEC+. Yet demand is down by about twice that amount, meaning the world’s oil tanks will keep filling day after day as long as planes stay grounded, businesses shuttered and billions of people remain at home.
Oil traders seemed initially optimistic in Asian trading hours after the…
Read More: The inside story of how oil price war ended
