As OPEC and non-OPEC members are preparing to put an end to the crude oil production cut agreement which has been in place for some time by the end of this month, there are palpable fears that exiting the production cut agreement may allow for free fall of crude oil price to about $40 per barrels which they would not be comfortable with.
This is even as the crude oil production of the cartel in the month of May dropped as the OPEC’s 14 members pumped 30.09 million barrels per day, with a 170,000 barrels per day fall from April and the lowest since February2015.
A few weeks ago OPEC+ was mulling the possibility of exiting the production cut agreement because the oil market was at risk of over-tightening. Now Saudi Arabia is scrambling to extend the cuts and may even unilaterally lower its own production further in an effort to head off a price slide.
On Monday, officials from Saudi Arabia and Russia reportedly discussed a possible scenario in which oil prices crashed below $40 per barrel, a recognition that the market has rapidly deteriorated. They view that outcome as a possibility if they can’t agree on an extension. “Today there are big risks of oversupply,” Russian Energy Minister Alexander Novak said in Moscow after meeting with Saudi oil minister Khalid al-Falih. “We’ve agreed that we need to run a deeper analysis and to see how events unfold in June.”
Russian President Vladimir Putin seemed to fuel speculation of a rift in Vienna in comments where he said: “Of course Saudi Arabia wants oil prices to remain higher,” the Interfax news agency quoted Putin as saying. “But we have no such need due to the more diversified nature of the Russian economy.”
The Saudis, of course, are desperate to prevent such a downward spiral. “Both at the bilateral and the OPEC+ level, we work in order to take preventive steps so as not to allow that scenario to happen,” al-Falih said in Moscow. He is undoubtedly trying to convince Novak of the wisdom of extending the production cuts.
Saudi energy minister Khalid al-Falih has been in Russia since last Thursday, meeting with Russian counterpart Alexander Novak to debate the future of the 1.2 million b/d supply cut agreement, which is set to expire at month’s end.
In all, OPEC’s 14 members pumped 30.09 million b/d in May, a 170,000 b/d fall from April and the lowest since February 2015, before Gabon, Equatorial Guinea and the Republic of Congo joined and Qatar was still a member, the Platts survey found.
In fact, Saudi production has been well below its quota of 10.31 million b/d under an OPEC/non-OPEC supply accord, which went into force in January, with the kingdom persisting in its aim of draining what it sees as a glut of oil in storage to bolster prices.
Nigeria also saw production fall significantly in the month, hampered by a fire at its Trans Forcados crude pipeline that forced it to shut down and force majeure on key export grade Bonny Light that was lifted mid-May.
The declines were partially offset by major gains in Iraq, which appeared to flout its production quota by hitting a record high of 4.82 million b/d, according to the survey.
Angola also saw a 40,000 b/d rise, as it began shipments of new crude grade Mostarda.
Among OPEC’s 11 members with quotas under the supply accord, compliance stood at 117% in May, led by Saudi Arabia, which was 610,000 b/d under its cap. Iraq was the least compliant, at 310,000 b/d above its limit.
The OPEC/non-OPEC agreement exempted Iran, Libya and Venezuela from quotas.
OLUSOLA Bello with Agency report