As the coronavirus pandemic continues to weigh on global oil demand, the OPEC oil producers’ club on Monday began a meeting in which they are expected to decide on an extension of production cuts. “2020 continues to be a year of immense challenges caused by the Covid-19 pandemic,” Abdelmadjid Attar, who currently holds the rotating presidency of the Organisation of the Petroleum Exporting Countries (OPEC) and is also Algeria’s energy minister, said in a speech broadcast live at the beginning of the group’s videoconference meeting.
The common goal of the 13 member states, who will be joined by Russia and other allies forming the OPEC+ grouping on Tuesday, is to keep afloat a crude market devastated by the Covid-19 pandemic and which is slowly recovering from the depths into which prices plunged at the end of April. That month, OPEC members agreed to cut production by 7.7 million barrels per day (bpd), which was meant to be eased to 5.8 million bpd in January 2021.
However, most observers expect the cut instead to be extended by three to six months to take into account the ongoing effects of the virus. A “second wave of the pandemic and related lockdowns put a damper on demand,” Attar told the ministerial meeting. “The shock to the oil industry is massive and its severe impacts will likely reverberate in the years to come,” Attar said.
Despite encouraging news from trials for vaccines by pharmaceutical companies, global deployment would take time and its effects might not become significantly apparent before the second half of 2021, Attar cautioned. Just this March, the last of their meetings to be held at OPEC headquarters in Vienna before the pandemic forced them online turned into a fiasco when Saudi Arabia and key ally Russia failed to reach an agreement and spent the next month engaged in a fratricidal price war.
Whether all members are currently sticking to the output quotas that have already been assigned to them has also become a sensitive topic. Those exceeding their allotted output — foremost among them Iraq and Nigeria — regularly come in for a scolding from Prince Abdelaziz bin Salman, energy minister of OPEC kingpin Saudi Arabia. Crude oil prices have picked up by 25 percent since the beginning of the month and have returned to roughly their pre-pandemic levels of between 45 and 50 dollars per barrel for both the US benchmark, West Texas Intermediate (WTI), and Europe’s Brent North Sea contracts. However, they were down on Monday morning in what analysts say was a sign of investor jitters ahead of the meeting.
