The Organization of the Petroleum Exporting Countries (OPEC) represented itself as a stability source in the days of mayhem and fear due to coronavirus and dying economy. However, last month, the alliance weakens that argument by adding to the significant to the substantial market chaos. Saudi Arabia, the OPEC leader, and its ally Russia kicked it out in a price war that ultimately helped send crude price crashing to eighteen-year lows.
Now OPEC has a chance to restore calm to energy markets experiencing instability at historic levels. However, it won’t be comfortable. On the other hand, OPEC+ plans to hold a video conference meeting on Thursday where the cartel could finally make the oil production cuts that needed badly some weeks ago to restructure the collapse in international demand caused due to the COVID-19 outbreak.
Trump raised the expectations to cut oil production by Saudi Arabia & Russia
Donald Trump, the President of the United States, intensely raised the expectations for reducing a significant amount in oil production. Last Thursday, the president expected that Saudi Arabia and Russia would cut oil production by around ten million to fifteen million barrels per day. Although still not any agreement announced and experts instantly distrust the claim of Trump – oil prices rushed on Wednesday. For the last seven days, the United States crude spiked thirty-two percent – the top week since 1983, when oil futures started trading on NYMEX.
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!
— Donald J. Trump (@realDonaldTrump) April 2, 2020
Chief commodities economist at Capital Economics, Caroline Bain, expresses that as the oil markets are expecting a significant amount of reduction in oil production, anything less than the expectation may send the prices into freefall. Oil producers are fighting against the current declining scenario. Meanwhile, the energy companies are flooding the market with excessive oil production, and soon the world will run out of space to store it. And at that stage, the prices may crash into single-digits, worsening what will possibly be a wave of bankruptcies in the United States oil industry. To combat the situation, Trump offered the energy companies in the U.S. with storage spaces to store the oil until everything goes to normal.
Who will at first to blink this Battle?
Mohammad bin Salman, the Saudi Crown Prince tired of being the only stakeholder taking the effect of oil production cuts, now he wants other countries to join him. And according to some reports, the U.S., Mexico, and Canada may receive an invitation to the meeting of this week. Certainly, oil production in the U.S. drops naturally as high-cost companies respond to the crash. Whereas, Texas officials enforced to consider the output limits – something that didn’t happen in over forty years. However, it is not clear how to limit such oil production at the national level.
Whereas, Russia may eventually agree to output cuts, with Vladimir Putin supposedly suggesting Friday that worldwide production gets cut by ten million barrels a day. But in exchange, Moscow may demand sanctions relief from Washington. The global head of commodity strategy at RBC Capital Markets, Helima Croft, said that to get back Russia to the table, it may cost. And it is not clear Washington agrees to pay that price. Global demand is failing at an extraordinary rate, and there is little MBS, Trump, and Putin can do about that.
Read Also: Trump goes 180 on his previous statements on OPEC and Oil
