Fri | Mar 29, 2024

Oil producers leave door open to more cuts as virus spikes

Published:Tuesday | November 10, 2020 | 12:07 AM
Oil pump jack in Colorado.
Oil pump jack in Colorado.

Saudi Arabia’s energy minister said Monday that global energy producers have the ability to tweak an agreement on production cuts that could be extended through to the end of 2022, signalling the anticipation of continued weakened demand for oil as the coronavirus pandemic peaks again in Europe and the United States.

“OPEC has been and continues to be taking a proactive role,” said Prince Abdulaziz bin Salman during the Abu Dhabi-sponsored ADIPEC energy conference, which is taking place virtually this year.

“We’re keeping our flexibility in our hands,” Prince Abdulaziz said, without committing specifically to how far into the future cuts of 7.7 million barrels of oil a day or more could go on for.

“I don’t put policy lines ahead of reaching out to everybody,” he said.

The OPEC oil cartel, led by Saudi Arabia, and non-OPEC nations, including Russia, agreed in April to cut as much as 10 million barrels of crude a day, or a tenth of global supply, until July to keep oil prices from plunging amid lower demand for crude.

The so-called OPEC+ agreement aimed to ease those cuts to 7.7 million barrels per day through to the end of the year, and to nearly six million a day for 16 months, beginning in January.

The UAE’s Energy Minister, Suhail al-Mazrouei, also echoed confidence in the OPEC+ agreement, saying the deal has been working.

“We have also demonstrated as a group that we’ve been very disciplined,” he said.

The OPEC+ countries are convening again on November 17, but there’s no guarantee they will be able to agree on deeper cuts into 2021, given that some countries are losing revenue amid existing quotas on production.

The virus has dampened the price of oil, affecting key revenue for oil-producing nations. But positive news about the effectiveness of a vaccine by Pfizer on Monday saw stock markets rally and Brent crude, the international standard, shoot up well past US$42 a barrel.

Still, there’s little guarantee of a rebound or quick vaccine roll-out as major European cities reinstate various lockdown measures due to alarming spikes in new coronavirus cases ahead of the coming winter months and flu season.

Prince Abdulaziz said that while oil-producing nations are hopeful a vaccine can help mitigate the virus and help the world regain a sense of mobility, the current agreement can always be tweaked.

“The April agreement took into account what may happen and proactively decided to be prepared for the worst,” he said.

A new administration in Washington led by President-elect Joe Biden could also impact demand for oil, particularly if he is able to power the economy again and control the outbreak of COVID-19 across the United States, which has reached record highs in past weeks.

Biden could also impact oil markets if he is able to push through a stimulus package that boosts consumer spending, or if he’s able to cool down the trade war with China and re-engage with Iran, which could lead to the lifting of US sanctions on Iranian oil exports. He could also return the US to the Paris Climate agreement and reverse the Trump administration rollbacks on fuel economy regulations, according to energy intelligence firm Rystad Energy.

Prince Abdulaziz said energy-producing nations will handle whatever happens and that OPEC, which Iran is a party to, has managed in the past to handle reversals as they come.

OPEC Secretary General Mohammad Barkindo struck an optimistic tone for the future of oil, saying that while there’s been a contraction of nearly 9.8 millions barrels of oil a day in 2020, forecasts for next year are being revised upwards.

“There is no cause for alarm,” he said, adding that countries to the OPEC+ agreement have been complying with the cuts since May.

AP