While the coronavirus continues to capture mainstream attention, a much-anticipated meeting took place between the largest oil producers in the world. More specifically, a video conference meeting took place between all of the OPEC countries as well as their allies, including Russia, to decide on what should be done about the current situation.
As most experts expected, the Saudis and the Russians managed to come to an agreement on reducing oil output, ending their month-long price war. However, Mexico ended up walking out of the talks, potentially posing a threat to OPEC’s new agreement.
The group said that it would cut oil output by 10 million barrels, or just 10%, in an effort to prop up prices. While this is only a relatively small agreement for now, further talk will continue at a meeting of G20 energy ministers scheduled for Friday.
Although oil prices shot up a little in response to the news, they ended up tumbling back significantly. Prices for West Texas Intermediate fell by around 9.3%, ending Thursday at $22.8 a barrel. Brent crude is trading at $33.9 a barrel, down 4.8%.
While this agreement is seen as the conclusion to a month-long price war that has seen prices fall, it remains conditional on Mexico consenting to the arrangement. During Thursday’s meeting, Mexico refused to join in on these oil cuts, claiming that countries like Russia, Saudi Arabia, and the U.S. should be cutting back more on their production while smaller producers cut back a little less.
While a successful agreement might have a mild effect in pushing up prices, the demand for oil in general has plummeted thanks to this pandemic. Air travel has virtually ceased, tourism has completely halted, and remote work means fewer people are commuting to their jobs. Oil consumption around the world is expected to fall by as much as 30 million barrels per day in April.
OPEC Secretary-General Mohammed Barkindo when on to say that “the supply and demand fundamentals are horrifying,” adding that this decline is “unprecedented in modern times.” Most energy analysts agree that things aren’t going to look much better for the energy sector anytime soon. At best, it seems that prices could return to normal sometime in the Fall when the full extent of the coronavirus pandemic settles.
Additionally, President Trump said that he spoke with his Russian and Saudi counterparts on Thursday, where he said that he wanted to prevent layoffs in the oil industry both globally as well as in the U.S. America currently hasn’t committed to any supply cuts itself, but production in the country has already been gradually declining anyway as prices remained low. Although the deal is technically not concluded, it’s expected that OPEC will officially announce a complete deal sometime on Friday or Saturday.
While oil producers in around the world have been hard hit by these low oil prices, the situation is much worse for countries that have traditionally been high-cost producers. Areas such as the Albertan oil sands in Canada struggle to stay profitable when oil is at $40 to $50 a barrel, let alone $25. Time will tell as to what will happen to these oil companies in the months ahead.
