Jon Gambrell

OPEC, allied nations extend nearly 10M barrel cut by a month

DUBAI, United Arab Emirates (AP) — OPEC and allied nations agreed June 6 to extend a production cut of nearly 10 million barrels of oil per day through the end of July, hoping to encourage stability in energy markets hard hit by the coronavirus-induced global economic crisis. Ministers of the cartel and outside nations led by Russia met via video conference to adopt the measure, aimed at cutting the excess production depressing prices as global aviation remains largely grounded due to the pandemic. The curbed output represents some 10 percent of the world’s overall supply. But danger still lurks for the market, even as a number of nations ease virus-related lockdowns, and enforcing compliance remains thorny. Algerian Oil Minister Mohamed Arkab, the current OPEC president, warned meeting attendees that the global oil inventory would soar to 1.5 billion barrels by the mid-point of this year. “Despite the progress to date, we cannot afford to rest on our laurels,” Arkab said. “The challenges we face remain daunting.” That was a message echoed by Saudi Oil Minister Abdulaziz bin Salman, who acknowledged “we all have made sacrifices to make it where we are today.” He said he remained shocked by the day in April when U.S. oil futures plunged below zero. “There are encouraging signs we are over the worst,” he said. Russian Energy Minister Alexander Novak similarly called April “the worst month in history” for the global oil market. The decision came in a unanimous vote, Energy Minister Suhail al-Mazrouei of the United Arab Emirates wrote on Twitter. He called it “a courageous decision.” But it is only a one-month extension of a production cut that was deep enough “to keep prices from going so low that it creates global financial risk but not enough to make prices very high, which would be a burden to consumers in a recessionary time,” said Amy Myers Jaffe, senior fellow at the Council for Foreign Relations. “There is so much uncertainty that I think they took a conservative approach,” she said. “You don’t know how much production is going to come back on. You don’t know what’s going to happen with demand. You don’t know if there’s going to be a second (pandemic) wave.” Jaffe said improved oil demand in China and Asia and a gradual stabilization of demand in the United States and to some extent Europe, where there’s some cautious economic reopening, were encouraging for producers. OPEC has 13 member states and is largely dominated by oil-rich Saudi Arabia. The additional countries involved part in the so-called OPEC Plus accord have been led by Russia, with Mexico under President Andrés Manuel López Obrador playing a considerable role at the last minute in the initial agreement. Crude oil prices have been gaining in recent days, in part on hopes OPEC would continue the cut. International benchmark Brent crude traded Saturday at over $42 a barrel. Brent had crashed below $20 per barrel in April. Earlier this year, when demand was down, Saudi Arabia was flooding the market with crude oil, helping to send prices down to record lows. That prompted the U.S. government in April to take the unusual step of getting involved in OPEC’s negotiations, pressuring members of the cartel to agree to cuts to help end the oil price free-fall. At the time, President Donald Trump said the U.S. would help take on some of the cuts that Mexico was unwilling to make. And perhaps more importantly, a group of U.S. senators upset over the impact on U.S. shale production said at the time that they had drafted legislation which would remove American forces, including Patriot Missile batteries, from Saudi Arabia. Under a deal reached in April, OPEC and allied countries were to cut nearly 10 million barrels per day until July, then 8 million barrels per day through the end of the year, and 6 million per day for 16 months beginning in 2021. In a Rose Garden speech on June 5, Trump took credit for the April deal. “People said that wasn’t possible but we got Saudi Arabia, Russia and others to cut back substantially,” he said. “We appreciate that very much.” U.S. Energy Secretary Dan Brouillette tweeted his applause June 6 for the extension, which he said comes “at a pivotal time as oil demand continues to recover and economies reopen around the world.” However, some countries have been producing beyond quotas set by the deal. One was Iraq, which remains decimated after a years-long war against the Islamic State group. Iraq Oil Ministry spokesman Assem Jihad said in a statement that Baghdad had “renewed its full commitment” to the OPEC Plus deal. Analysts had expected only a one-month extension given the still fluctuating level of demand. “If the demand is great, countries like Russia will want to produce more oil, so they probably won’t want to get locked into a longer-term deal that may not help them,” said Jacques Rousseau, managing director at Clearview Energy Partners. In a research note, Clearview also said Saturday that the producers group “appears to be going to great lengths to keep the deal together despite unequal compliance” — trying to avoid public fights on the issue. “That solution might work today, but not repeatedly,” it said, citing reports of rising Libyan output and the end of production cuts from Mexico that will heighten the need for compliance. Major production cuts are simply untenable for countries such as Iraq, Oman and Ecuador, whose economies depend nearly exclusively on petroleum income, as they could face debt default. Bajak reported from Boston. Associated Press writer Cathy Bussewitz in New York contributed to this report.

OPEC, oil nations agree to nearly 10M barrel cut amid virus

DUBAI, United Arab Emirates (AP) — OPEC, Russia and other oil-producing nations on April 12 finalized an unprecedented production cut of nearly 10 million barrels, or a tenth of global supply, in hopes of boosting crashing prices amid the coronavirus pandemic and a price war, officials said. “This could be the largest reduction in production from OPEC for perhaps a decade, maybe longer,” said U.S. Energy Secretary Dan Brouillette, who credited President Donald Trump’s personal involvement in getting dueling parties to the table and helping to end a price war between Saudi Arabia and Russia. Oil prices have collapsed as the coronavirus and the COVID-19 illness it causes have largely halted global travel and slowed down other energy-chugging sectors such as manufacturing. It has devastated the oil industry in the U.S., which now pumps more crude than any other country. But some producers have been reluctant to ease supply. The cartel and other nations agreed to allow Mexico to cut only 100,000 barrels per month, a sticking point for an accord initially reached Friday after a marathon video conference between 23 nations. The nations together agreed to cut 9.7 million barrels per day throughout May and June. The group reached the deal just hours before Asian markets reopened April 13 and as international benchmark Brent crude traded at just more than $31 per barrel and American shale producers struggle. Video aired by the Saudi-owned satellite channel Al-Arabiya showed the moment that Saudi Energy Minister Prince Abdulaziz bin Salman, a son of King Salman, assented to the deal. “I go with the consent, so I agree,” the prince said, chuckling, drawing a round of applause from those on the video call. But it had not been smiles and laughs for weeks after the so-called OPEC+ group of OPEC members and other nations failed in March to reach an agreement on production cuts, sending prices tumbling. Saudi Arabia sharply criticized Russia days earlier over what it described as comments critical of the kingdom, which finds itself trying to appease Trump, a longtime OPEC critic. Even U.S. senators had warned Saudi Arabia to find a way to boost prices as American shale firms face far-higher production costs. American troops had been deployed to the kingdom for the first time since the Sept. 11, 2001, attacks over concerns of Iranian retaliation amid regional tensions. “They’ve spent over the last month waging war on American oil producers while we are defending theirs. This is not how friends treat friends,” said Sen. Kevin Cramer, a Republican from North Dakota, before the OPEC+ deal. U.S. producers have already been reducing output. The American Petroleum Institute lauded the global pact, saying it will help get other nations’ state-owned oil production to follow the lead of U.S. producers that are trying to adjust to plunging demand. Brouillette said the U.S. did not make commitments of its own production cuts, but was able to show the obvious — that plunging demand because of the pandemic is expected to slash U.S. oil production. Iranian Oil Minister Bijan Zanganeh also told state television that Kuwait, Saudi Arabia and the United Arab Emirates would cut another 2 million barrels of oil per day between them atop the OPEC+ deal. The three countries did not immediately acknowledge the cut themselves, though Zanganeh attended the video conference. Officials said other planned cuts would stand in the deal, meaning an 8 million barrel per day cut from July through the end of the year and a 6 million barrel cut for 16 months beginning in 2021. “This will enable the rebalancing of the oil markets and the expected rebound of prices by $15 per barrel in the short term,” said a statement from Nigeria’s oil ministry. Mexico had initially blocked the deal but its president, Andrés Manuel López Obrador, said April 10 that he had agreed with Trump that the U.S. will compensate what Mexico cannot add to the proposed cuts. “The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States,” Trump said in a tweet. “I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia.” The Kremlin said President Vladimir Putin held a joint call with Trump and Saudi King Salman to express support of the deal. It also said Putin spoke separately with Trump about the oil market and other issues. Analysts offered cautious praise. “The pure size of the cut is unprecedented, but, then again, so is the impact the coronavirus is having on demand,” said Mohammed Ghulam, an energy analyst at Raymond James. But Ghulam and others worried it may not be enough. “This is at least a temporary relief for the energy industry and for the global economy. This industry is too big to be let to fail and the alliance showed responsibility with this agreement,” said Per Magnus Nysveen, the head of analysis at Rystad Energy. “Even though the production cuts are smaller than what the market needed and only postpone the stock building constraints problem, the worst is for now avoided.” Knickmeyer reported from Washington. Associated Press writers Amir Vahdat in Tehran, Iran, Matt O’Brien in Providence, Rhode Island, Cathy Bussewitz in New York and Jim Heintz in Moscow contributed to this report.

Abu Dhabi summit: Oil production cuts may be necessary

ABU DHABI, United Arab Emirates (AP) — OPEC and allied oil-producing countries will likely need to cut crude supplies, perhaps by as much as 1 million barrels of oil per day, to rebalance the market after U.S. sanctions on Iran failed to cut Tehran’s output, Saudi Arabia’s energy minister said Nov. 12. The comments from the minister, Khalid al-Falih, show the balancing act the U.S. allies face in dealing with President Donald Trump’s actions related to the oil industry. Trump in recent weeks demanded the oil cartel increase production to drive down U.S. gasoline prices. “Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” he tweeted Nov. 12. The U.S. has meanwhile allowed some of its allies — Greece, India, Italy, Japan, South Korea, Taiwan and Turkey — as well as rival China to continue to purchase Iranian oil despite re-imposed sanctions, as long as they work to reduce their imports to zero. Al-Falih, who on Nov. 11 said the kingdom would cut production by more than 500,000 barrels per day in December, said Nov. 12 that Saudi Arabia had been giving customers “100 percent of what they asked for.” That appeared to be a veiled reference to Trump. Before the United States re-imposed sanctions on Iran, “fear and anxiety gripped the market,” al-Falih said at the Abu Dhabi International Petroleum Exhibition &Conference. Now “we’re seeing the pendulum swing violently to the other side,” he added. The energy minister of the United Arab Emirates, Suhail al-Mazrouei, currently the president of OPEC, said “changes” likely would be necessary as the oil cartel meets in December in Vienna. However, he added: “We need not to overreact when these things happen.” Al-Falih said OPEC officials have seen analysis papers suggesting a production cut of upward of 1 million barrels of crude per day may be necessary to rebalance the market. However, he stressed that more study needed to be done. “There are a lot of assumptions in their projections that may change,” al-Falih said. “We don’t want to throttle the global economy.” A gallon of regular gasoline in the U.S. on average now sells for $2.69, down from $2.90 a month ago, according to AAA. Those lower prices likely quieted Trump, but production cuts could again boost prices at the pump. Neither al-Falih nor al-Mazrouei directly criticized Trump, but Mohammed Hamad al-Rumhy, Oman’s oil and gas minister, blamed the U.S. president for some of the volatility striking the oil market. Oman, a sultanate on the eastern edge of the Arabian Peninsula, maintains close diplomatic ties to Iran and often serves as an interlocutor between Western powers and Tehran. “Supply and demand is perhaps the easy part because you can measure it,” al-Rumhy said. It’s “extremely difficult to quantify what is happening in (the) White House — almost impossible.” Iran, which has tense relations with Abu Dhabi, the capital of the UAE, did not have a high-level official at the summit. Crude oil dropped to a low of $30 a barrel in January 2016. That forced OPEC to partner with non-OPEC countries, including Russia, to cut production to help prices rebound. Benchmark Brent crude, to which Alaska North Slope crude is priced, which had been trading at more than $80 per barrel recently, now hovers just more than $70 after the U.S. sanction waivers on Iran. Meanwhile, Sultan Ahmed al-Jaber, the head of the state-run Abu Dhabi National Oil Co., said the UAE planned to increase oil production to 4 million barrels per day by 2020 and 5 million barrels per day by 2030. The UAE now produces some 3 million barrels of oil per day. Al-Jaber also said the UAE would begin fracking — injecting high-pressure mixtures of water, sand or gravel and chemicals — to gain access to otherwise unreachable natural gas reserves. “Make no mistake: Hydrocarbons will continue to play an absolutely essential part of a diversified energy mix,” al-Jaber said. But the highs and lows of the market need to end for both oil consumers and producers to profit, said al-Rumhy, the Omani official. “If it was my heart beat going that way, I think I would be in the hospital right now,” he said.
Subscribe to RSS - Jon Gambrell