However, whether the cartel actually succeeds depends on Russia. The Organization of Petroleum Exporting Countries (Opec) has agreed to massively reduce its oil production. The 13 Opec countries agreed to produce one million barrels (around 159 liters) less oil a day, as Opec announced on Thursday. In addition, the ten allied states of the Opec + Alliance are to reduce their funding by 500,000 barrels. In addition to the classic Opec countries, the Opec + Alliance also includes countries that produce a lot of oil but are not in the Opec, such as Russia. The funding cuts that have now been decided are to remain in force until at least June. They clearly exceed market expectations. As a result, the amount of oil produced by Opec should drop to its lowest level since 2003. A committee of experts from Opec had recommended that the member states cut production by 600,000 to one million barrels due to the spread of the corona virus and the resulting drop in oil demand.
Nevertheless, Thursday's oil prices hardly reacted to the decision: The price for Brent North Sea stagnated at less than $ 52 a barrel.Because it is still unclear whether Russia, along with Saudi Arabia, the most important member of Opec +, will agree to the deal. Russian oil minister Alexander Nowak left Vienna on Wednesday evening after consulting with Saudi Arabia and other Opec countries without signaling his support for new cuts in production.
However, Iranian oil minister Bijan Namdar Zanganeh said on Thursday to media representatives that he firmly anticipated that Russia would also agree to new cuts - albeit at the last second.
Slump in oil demand
The Opec meets in Vienna to discuss a reaction to the spread of the coronavirus. Mohammed Arkab, OPEC President and Minister of Energy of Algeria, said the corona virus has a "markedly opposite effect" on global oil demand. No country can handle the effects alone. The price of oil had plummeted 16 percent in the past week alone. It is currently trading at almost 25 percent below the annual high at the end of January.
The expanded Opec + Alliance finally meets on Friday to find a common line between the 23 oil countries.Then the Russian oil minister Nowak returns to Vienna for the negotiations. It will depend on the talks on Friday whether Allianz will actually succeed in stabilizing the oil market.
The virus epidemic has caused oil demand to plummet worldwide. The decline in oil demand was particularly strong in China. With a consumption of 14 million barrels a day, the country is by far the most important oil importer in the world.
As a result, most experts now assume that oil demand will only grow slightly or even stagnate in 2020. Opec itself has more than halved its forecast for growth in global oil demand.
In order to keep supply and demand in balance and to stabilize prices, Opec is therefore forced to curb its production and remove excess oil from the market. The cartel has repeatedly responded to price weaknesses with cutbacks in the past, most recently in December 2019. But the strategy is painful for Opec, as its market share in global oil production has been falling for years.
Source: Handelsblatt
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