OPEC+ Due Output Cuts Unprecedented: Iran Oil Minister

Iranian Minister of Petroleum Bijan Zanganeh said the coalition of oil producers at the Organization of the Petroleum Exporting Countries (OPEC) and their non-OPEC allies had agreed to curtail output by 10 million bpd.

Speaking to Shana following a marathon webinar in the wee hours of Friday, Zanganeh said the cuts would be joined by other producers including the US, Brazil and Canada. He said the 10 million bpd cuts were considered for the period between 1 May and 1 June 2020 which would be followed by 8 million bpd cuts for the rest of the year.

Moreover, according to Zanganeh, a cut of 6 million bpd would also be implemented for the period between 1 January 2021 and 1 April 2022. This is the first time such a deep cut in a long period ever considered in OPEC. “There were some issues in the conference and some discussions will be continued especially with Mexico, which needed more time to agree on certain topics,” he added.

“The draft for final statement of the ninth emergency meeting of OPEC+ has been compiled and is expected to be published in the coming days after a final review,” said Zanganeh, referring to the 10-hour meeting held via videoconference that finished earlier on Friday.

Iran, a major oil producer whose crude exports have been significantly affected by US sanctions, is exempt from the new cuts along with Libya and Venezuela.

OPEC decision

Major oil producers, except Mexico, agreed to cut output in May and June by 10 million bpd, OPEC said Friday, after marathon talks to counter a collapse in prices, AFP reported.

The videoconference led by OPEC has been seen as the best chance of providing support to prices, which have been wallowing near two-decade lows due to the coronavirus pandemic and a price war between key players, Saudi Arabia and Russia.

The agreement, which also reduces production by eight million bpd from July to December, depends on Mexico’s consent for it to take effect, the oil group said after the meeting. The virtual meeting of OPEC countries and their OPEC+ allies including Russia, as well as other key non-members, began just after 1440 GMT on Thursday.

Talks dragged on into the small hours of Friday. Bloomberg News reported that the main sticking point was the refusal of Mexico to sign up to its share of cuts under the deal, which would have been 400,000 barrels per day. Mexican Energy Minister Rocio Nahle Garcia tweeted that her country had suggested a cut of 100,000 barrels.

Another virtual meeting is scheduled for June 10 “to determine further actions as needed to balance the market,” OPEC said. The current agreement also foresees a six million bpd cut from January 2021 through April 2022. An extension to the cooperation deal will be reviewed in December next year, OPEC said.

‘Less than hoped’

Stephen Innes, an analyst at AxiCorp, said the supply cuts were "less than the market hoped for" given the hit to demand from coronavirus lockdowns throughout the world. "The deal currently tabled will only partially offset oil price distress, but that's what it was supposed to do. Still, the storm clouds for oil prices will only completely dissipate when lockdowns are lifted," he said.

Rystad Energy also said market equilibrium would not be reestablished although the cuts for May and June would prevent prices from crashing. Oil prices have slumped since the beginning of the year due to the COVID-19 pandemic.

At the beginning of the meeting, OPEC Secretary General Mohammad Barkindo warned that the rapid economic damage wrought by the virus meant the industry's "supply and demand fundamentals are horrifying".

"Our industry is hemorrhaging; no one has been able to stem the bleeding," Barkindo said, bemoaning companies already filing for bankruptcy and the tens of thousands of jobs that have been lost. Compounding the problem, Riyadh and Moscow had both ramped up output in a bid to hold on to market share and undercut US shale producers.

Wide effort

At the same time, the global supply glut – already weighing on oil markets before the coronavirus crisis – has stretched oil storage capacity to its limits, forcing many producers to scale back output. In his opening statement to the meeting carried by the Rossiya 24 channel, Russian Energy Minister Alexander Novak welcomed the presence of several nations outside the OPEC-plus alliance, namely Canada, Norway, Argentina, Colombia, Egypt, Indonesia, Chad, Ecuador and Trinidad and Tobago.

The International Energy Agency warned Monday that the world is set for its first annual decline in oil consumption in more than a decade because of the pandemic. The outbreak has shut down large swathes of the global economy, including key sectors such as air travel, manufacturing and retail. The global oil glut could reach 25 million bpd in April, according to Rystad Energy. - Shana, Iran Daily