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#Post 15 : Did OPEC sell out its Chances of Losing against Falling Crude Oil Prices?

The dependency of economies on crude oil to sustain development was highlighted in front of us in a very tragic way, when oil companies faced the biggest hit in their entire history during April 2020. (The day April 20, 2020, was renowned by “Black Monday” and will be a significant day in the history of future literature. The impact was so fierce that G20 countries conducted an urgent three day (April 9, 10, and 12) virtual meeting to plan and discuss for cutting oil supplies on a priority basis to restore the equilibrium between global demand and supply of crude oil. Moreover, if the oversupply of crude oil would have continued it would have further added nearly 1.3 Bn barrels to global crude oil stocks.  



Insights (* from OPEC) 

  • In 2019, OPEC’s contribution towards global crude oil production stands for 29.33 m b/d (million barrels/ day) which was nearly 39% of the world output. 
  • In April 2020, during Extraordinary OPEC and Non-OPEC Ministerial meeting countries decided to adjust crude oil production by 9.7 m b/d for May 2020 to June 2020 (inclusive). This move has reflected by supporting crude oil prices. 
  • Further from July 2020 to December 2020 overall crude production will be down by 7.7 m b/d and from January 1, 2021, to April 30, 2022 production will sink      downwards by 5.8 m b/d
  • On Black Monday, WTI futures slipped to negative US $ 37.63 (heaven for those who held short positions)
  • Mexico was the only country that did not agree to adjust production of oil at the same percentage and offered to adjust production by 1,00,000 b/d. Moreover, Mexican President Andres Manuel Lopez Obrador further stated that the United States can agree over other parts of its contribution to adjusting crude oil production. 


Conclusion:

This collaborative and furious decision making has supported prices to grow by nearly 200% from negative US $37.63 to US $35.05 (*as of 12/06/2020). However, amid May 2020, Russia has played a significant role by not keeping its promise of adjustment in oil production, which further led to a delay in the recovery of crude oil prices. The example of Russia and Mexico suggests that cutting down the production of crude oil as decided by OPEC + other oil-producing countries will remain a matter of subject. However, the crude oil price is expected to retain their previous levels by the end of Q4 2020.


                                                                                                        by Gautam Mishra
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