Hope is rising as the Organisation of Oil Exporting Countries (OPEC+) agreed to cut crude oil supply by 9.7million barrels. This followed an alignment with Mexico which came after four days of diplomatic wrangling between Mexico and Saudi Arabia.
This pushed the price of Brent crude as of Monday morning is $31.74 while Bonny Light is $26.40. the price came as low as $20 per barrel last month.
The OPEC+ alliance on Thursday agreed on a plan to cut its output by 10 million barrels per day — equal to a 10th of global supply. It also ends the month-long price war between Saudi Arabia and Russia.
The intervention of the United States of America (USA) resulted in Mexico accepting to cut 100,000 barrels per day and to be complemented by an additional 300 thousand barrels of oil per day (KBOPD) by US producers.
And with the cut in production, Nigeria is optimistic that oil prices will stabilize at $30 per barrel (pb) which is the new benchmark for its incoming revised 2020 budget.
Nigeria’s Minister of State for Petroleum Resources, Chief Timipre Sylva, said that the final agreement would enable the rebalancing of the oil markets and the expected rebound of prices by $15 per barrel in the short term. This also promises an appropriate balancing of Nigeria’s 2020 budget that has been rebased at $30 per barrel.
The OPEC+ alliance initially met on Thursday via video conference, followed on Friday by a virtual gathering of Energy Ministers of the Group of 20 (G-20) who said that it would take “all the necessary measures” to maintain a balance between oil producers and consumers, but it made no commitment toward specific steps on production cuts.
Saudi Arabia initially wanted the G-20 meeting to yield at least 5 million barrels a day of cut commitments from producers outside OPEC+.
The OPEC+ coalition, which comprises members of the oil cartel and allied producers including Russia, had been voluntarily curbing output since 2017.
The alliance began to crumble last month when Saudi Arabia and Russia couldn’t agree on deeper production curbs to offset the impact of the virus. Saudi Arabia responded by launching the price war, and one month on, all sides are seeking a truce.
Before the new agreement, negotiations had escalated to the highest level, with President Trump intervening to speak to leaders including Crown Prince Mohammed bin Salman of Saudi Arabia.
Late last week, a deal looked close until Mexico raised objections to it as populist President Andres Manuel Lopez Obrador pledged to restore his country’s oil-pumping prowess with its politically symbolic state oil firm, and so he is reluctant to cut output.
Trump offered a compromise – by which US cuts would count as Mexican – but it was rejected by Saudi Arabia. Talks between the Kingdom and Mexico continued through the weekend.
Analysts said that even if the deal was reached, it may not be enough to put a floor under oil prices. While a 10 per cent reduction in worldwide crude output would be unprecedented, it would barely dent the surplus that continues to build as the virus lockdown spreads.
West Texas Intermediate crude slid more than nine per cent on Thursday – as a deal looked likely -settling below $23 a barrel. Markets were closed on Friday.
Agency reports said that traders will inspect any agreement for details of where real cuts are coming from, and how much of the headline figure might come from moving baselines and reductions that have already been forced on producers by the market.
The tentative OPEC+ deal for a 10 million-barrel cut requires Mexico to reduce its own output by 400,000 barrels a day. The Latin American country has rejected the proposal, instead offering to cut output by just 100,000 barrels.
In an attempt to break the impasse, Trump offered a diplomatic solution that includes some creative accounting, with Mexico counting some of the US market-driven supply decline as its own.
According to delegates, most OPEC+ countries back the Trump compromise – even if they acknowledge it’s a face-saving mechanism that doesn’t translate into actual cuts. But Saudi Arabia insisted that Mexico cut its production as much as everyone else.