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OPEC+ deal resets and reshapes oil geopolitics


A perfect deal is where all protagonists get something out of it. All oil-producing countries stand to gain if the oil price rebounds.

In bare bones, the OPEC+ group led by Saudi Arabia and Russia finalized, in a nail-biting photo finish on April 12, an agreement to cut oil production by a combined 9.7 million barrels per day (mbpd) for May and June to rebalance the supply and demand in the world market and nudge the prices to go up amid the coronavirus pandemic.

It capped days-long tortuous international negotiations that also included the United States. Additional cuts are expected from producers outside the OPEC+ group. Experts anticipate that by the second half of the year, oil prices would be nearing US$40 per barrel.

The world’s oil producers are joining together for the largest cooperative production initiative in history. The tectonic plates are shifting in the geopolitics of oil.

Historically, the US rallied against the oil cartel as a threat to the American economy. However, not only has Washington joined the latest production program, but the success of that program may actually hinge on the US, where oil production has doubled in a single decade.

Saudi Arabia and Russia were locked in a fierce oil price war while the Covid-19 crisis dampens global demand. Photo: AFP via Getty

US President Donald Trump has held direct talks in recent days with the heads of Russia, Saudi Arabia and Mexico. Although the US, the world’s largest producer, has not offered firm production cuts, Trump and the US Energy Department have emphasized that market forces will bring US declines.

That is to say, cuts can come from government action via corporate decisions, as companies either shut-in production or file for bankruptcy. The estimates are that the US production is projected to fall by 2 million barrels per day by the end of this year and perhaps more.

Sputnik reports, “According to industry figures, the US’s drop in output could see exports shrinking from over 3mbpd in 2019 to almost [zero] in the coming months, removing a key concern for both Russia and the Saudis amid fears of a US takeover of their traditional markets.”


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