VIENNA: Ministers from the Opec cartel of oil-producing countries said Thursday they would recommend a production cut of 1.5 million barrels per day to their allies in the wider Opec+ grouping, as they seek to counter the slump in demand caused by the Covid-19 outbreak.
At an extraordinary meeting at the headquarters of the Organization of Petroleum Exporting Countries in Vienna, ministers “agreed to recommend to the 8th Opec and non-Opec Ministerial Meeting a further adjustment of 1.5 mb/d until 30 June 2020,” a statement issued by the bloc said.
Opec ministers will reconvene on Friday and will be joined by their Opec+ colleagues.
Countries in the Opec+ grouping of the cartel’s allies would be asked to take on 500,000 barrels of the cuts, the statement added.
However, it remains to be seen whether the Opec+ states – Russia in particular – will be prepared to countenance such a large cut.
Producers had already had to contend with abundant supplies weighing on prices, but the spread of Covid-19 across the world has sent them plunging.
The European benchmark, Brent crude, sank to under US$50 per barrel on Sunday, a level not breached since July 2017.
The effects of the virus on global demand – particularly in worst-hit China – has blown a hole through the group’s attempt to support prices at its last meeting in December by agreeing on production cuts of 500,000 barrels per day.
Cuts are imperative
The success of the summit, which has been called three months ahead of the next scheduled meeting, will above all hang on the alliance between Saudi Arabia and Russia, the most important players in the Opec and Opec+ groupings respectively.
Saudi Arabia, the world’s third-biggest producer, is a supporter of further cuts.
But Russia, the world No 2 producer after the United States, may be harder to convince on this score, with Russian President Vladimir Putin being quoted on Sunday as saying the current market price was “acceptable” and above the level foreseen in Russian economic planning.
Russia’s RIA Novosti agency reported Wednesday that Moscow’s delegation was proposing an extension of the existing deal with no fresh cuts.
“Economic activity and oil demand is now collapsing around the world… If Russia does not step up now then what role does it really play in Opec+?” said Bjarne Schieldrop, a commodities analyst at SEB bank.
“An agreement to reduce the Opec+ group output level by at least one million barrels per day is imperative; otherwise oil prices will re-visit the recent lows and possibly break below them,” said analyst Tamas Varga of PVM Oil Associates.
Aside from bridging their differences on the effect of the virus on the market, the assembled officials are also having to accommodate changes to their routines in Vienna.
All those entering the Opec headquarters have to undergo temperature checks.
After the meeting’s opening speech, a medical advisor passed on hygiene guidelines, while assuring delegates that the risk of coronavirus infection in Vienna was “very, very low”.
Austria nationwide has recorded 38 cases so far.
On Wednesday, Opec’s Secretary-General Mohammed Barkindo and Russian Energy Minister Alexander Novak were seen in a video tweeted by the organisation attempting a “footshake”, gently bumping the sides of their feet together in a more hygienic alternative to a handshake.
The cartel has also barred access to its headquarters for the media due to the “risk that would come from convening such a vast number of people in one place”.
Livestreams of the beginning of meetings are instead being made available to journalists at a press centre in a nearby hotel.
In a statement on Tuesday, Opec said it was following UN guidelines and planned to “shorten the format of such gatherings, limit the number of participants and cancel any related side-events”.