Oil Recovery Suggests Imminent Production Cut

The continued recovery of the world’s major oil benchmarks despite the delayed OPEC+ meeting indicates the likelihood of an agreed reduction in production from major oil powers. The meeting, which was due yesterday, was delayed until Thursday April 9, as talks continue behind the scenes ahead of the showdown.

Despite the delay, prices have continued to recover over the drastic losses that saw WTI drop from US$62.70 on January 7 to a low of US$20.09 on March 30, while both Brent fell from US$68.27 to US$26.42 and the Mexican crude oil basket dropped from US$58.61 to US$10.37 in the same period. On Tuesday morning prices, stood at US$36.39, $33.35 and $20.48 respectively.

The price recovery was supported by US President Donald Trump tweeting his assurance that Saudi Arabia and Russia – two countries that are locked in a price war and have helped propel the price collapse – would be cutting their production soon. Trump said on Twitter: “I expect and hope that they will be cutting back approximately 10 million barrels” before following with another tweet that said reductions “could be as high as 15 million barrels. Good (GREAT) news for everyone!” Though both Saudi Arabia and Russia denied coming to an agreement at the time, the reduction of 15MMb/d would cut around 15 percent of the world requirements.

OPEC+’s video conference meeting is also likely to include other oil producing non-members like the US, Canada, Brazil and the UK. According to Reuters, these invitees will also be expected to reduce their production. The gathering of the leaders of the world’s energy industry has inspired hope in the market that is being reflected in oil’s rising barrel price.

Ahead of the meeting, there are indications that oil and gas players have already begun to respond to falling prices, with some reducing production. Operators have already cut budgets, while Rystad Energy reports a record margin drop-off in rig counts in the US. This fact, says the company, “is widely considered to be one of the most important indicators of investment appetite by E&Ps.” PEMEX, meanwhile, will reduce its exports by 33 percent and instead send an extra 400Mb/d through its own refining system as not to “waste” production, said President Andrés Manuel López Obrador. Production will continue, despite experts suggesting PEMEX should reduce drilling activity on unviable wells.