Fitch Solutions sees potential for new OPEC deal

Oil&Gas Materials 10 March 2020 18:04 (UTC +04:00)
Fitch Solutions sees potential for new OPEC deal

BAKU, Azerbaijan, March 10

By Leman Zeynalova – Trend:

There is a potential that a new deal on oil output cut by OPEC+ is reached, Emma Richards, senior industry analyst at Fitch Solutions told Trend.

“Our view is that the collapse of the deal was most likely the result of a policy misstep by Saudi Arabia and Russia. We believe Saudi Arabia had lost patience with Russia (which has been free-riding on the OPEC+ deal) and demanded that the country begin to pull its weight. Russia clearly refused, perhaps gambling on the fact that Saudi Arabia would – as it has done previously – be willing to sweeten the terms of the deal to get Moscow on board,” said Richards.

The 178th (Extraordinary) Meeting of the Conference of the Organization of the Petroleum Exporting Countries (OPEC), held in Vienna, Austria, on 5 March 2020, decided to recommend to the 8th OPEC and non-OPEC Ministerial Meeting to extend the adjustment levels agreed at the 177th Meeting of the Conference and the 7th OPEC and non-OPEC Ministerial Meeting for the remainder of the year. It also agreed to recommend to the 8th OPEC and non-OPEC Ministerial Meeting a further adjustment of 1.5 mb/d until 30 June 2020 to be applied pro-rata between OPEC (1.0 mb/d) and non-OPEC producing countries (0.5 mb/d) participating in the Declaration of Cooperation.

However, during the meeting held March 6, OPEC+ failed to reach any agreement on extension of the deal or deepening the cuts further, which led to a significant decline in oil prices.

She said Fitch Solutions sees potential that a new deal is reached, given the severe fiscal stresses that both countries face, should they fail to reach agreement.

However, the hardline stance that both have adopted since the deal’s collapse is arguably limiting the political and diplomatic space in which such an agreement could be forged, added Richards.

“Things may get worse before they get better and if Aramco carries out its threat to raise production to 12.3 million barrels per day in April, prices could easily sink as low as $20/bbl. With prices in the $20-30 per barrel range, US shale producers will be under huge financial strain and, if these prices are sustained, production growth will fall and ultimately turn negative,” she concluded.


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