BAKU, Azerbaijan, April 13
By Leman Zeynalova - Trend:
OPEC+ reduction to be less than headline figure, Trend reports citing the US Morgan Stanley.
The 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting held via videoconference, 12 April 2020 decided to adjust downwards the overall crude oil production by 9.7 mb/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020.
For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 7.7 mb/d. It will be followed by a 5.8 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022. The baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 mb/d. The agreement will be valid until 30 April 2022, however, the extension of this agreement will be reviewed during December 2021.
“This reduction will apply during May and June, after which it tapers off to around 8 million barrels per day in the second half of 2020 and about 6 million barrels per day during 2021 and early 2022. These cuts both are unusually deep and unusually long, underscoring the challenges that the oil market currently faces. In practice, however the reduction will likely be less than the headline figure of 9.7 million barrels per day suggests,” said the report released by Morgan Stanley.
“First, OPEC+ has set the quota relative to agreed reference levels which were generally higher than recent production. Second, we expect only partial compliance. We assume that Saudi Arabia will implement 100 percent of the agreed cuts and expect that Russia will follow this. However, partly informed by history and partly because of the precedent now set by Mexico, which was able to negotiate a lower reduction, we assume compliance of 75 percent for Kuwait and the UAE, and 50-60 percent for most other countries in the OPEC+ group. On this basis, we estimate OPEC+ production will fall 6.3 mb/d during May/June relative to their average output in 1Q20.”
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Follow the author on Twitter: @Lyaman_Zeyn
