The president tweeted and the world’s media rushed out news reports on Sunday that a deal had been reached between Saudi Arabia, Russia, OPEC and the U.S., a deal that would reduce oil output by nearly 10 million barrels a day to support prices and save oil-producing countries’ budgets.
According to The New York Times, the final reduction figure was in the region of a 9.7 million barrels because Mexico held out against a full 400,000-barrel cut and would only accept 100,000.
That aside, there seemed to be widespread agreement that everyone had to do their bit, but with Saudi Arabia and Russia making the largest reductions.
The 9.7 million barrel target only lasts for two months, tapering to 7.7 million from July to December and then 5.8 million from January to April 2021. No specific cuts were agreed by the U.S. However, according to The New York Times, big oil nations that are not members of OPEC+ — like Canada, Brazil and Norway, along with the U.S. — have been cutting production anyway.
The Energy Department has said that American oil production will fall by at least 2 million barrels a day by the end of the year. Other analysts say the eventual cut could be 3 million barrels a day out of the 13.3 million barrels a day produced at the beginning of the year.
Even so, this still only represents, at best, a reduction of some 12 million barrels per day — maybe 14 million to 15 million, including Canada and Brazil during the second quarter — but then reducing as the OPEC taper cuts in.
Before the coronavirus crisis, global demand was in the region of 100 million barrels of oil a day, The New York Times states, but demand is down about 35%, suggesting excess production is still in the region of an unprecedented 20 million barrels.
Analysts have cast doubts on even the 9.7 million barrels per day figure, saying it is based on high baseline estimates used to calculate cuts, estimating the real figure will be more like 7 million barrels per day before falls in North and South American production are factored in.
Global storage is rapidly filling up as consuming and producing countries fill up their reserves at what are historically low prices; estimates are storage will be full within a couple of months, if not just a few weeks.
So it is hardly surprising the oil price has resumed its downward trajectory as investors have woken up to the continued weak fundamentals.
Brent crude is currently below $28 per barrel and WTI is trading below $20 per barrel. Oilprice.com predicts further weakness, saying $15 per barrel WTI and lower is a very real possibility.
Devastating as the oil price collapse has been for the U.S. shale industry, it is far from the end of the transformative technological development — perhaps the most fundamental to impact the oil industry since the development of the Middle East oil industry after World War II — of fracking hard rocks to release oil and natural gas.
The crash in oil prices has pushed the U.S. back to the top table in setting market policy, however much the president and many others hate the idea of managed markets.
The U.S. role was key to finding a solution to the Saudi-induced instability in the market. Even if the resulting deal is too little, too late, and gradually unravels in the months ahead, the U.S. will remain a part of the process now — in stark contrast to its standalone, outsider role so far.