Oil prices fell to their lowest level in the last eighteen years in March as governments call people to stay home due to a coronavirus pandemic. Therefore, in accordance with reduced demand for fuel, it trades below $ 34, nearly half of its levels at the end of 2019.
Global demand for fuel dropped by up to 30% due to reduced car use, flights and stopping economic activity. Crude oil prices have fallen below the cost of production for many producers, including the rising US shale oil industry.
The market has come into the expectation of an agreement that could lead to an unprecedented decline of 10-15 million barrels a day or 10-15% of global supply. However, it is evidently stated by the industry actors that such a contribution would be a temporary treatment, would not be sufficient, and would not make any sense without the participation of the United States.
The Riyadh and Moscow dialogue, which was collapsed in March, pointed out that its deals on deep cuts will depend on the United States and other groups outside the group known as OPEC +. The United States is the world’s largest producer, but its management did not enforce local cuts, but it took a very meaningless attitude, saying the country’s production fell without government action. It is necessary to discuss whether a natural decline can be considered a decrease due to low prices. Comparing the drop in demand due to low prices, within the cooperative cuts, to offset global markets is different concepts and should not be compared.
Saudi Arabia and Moscow have not yet released any agreement to the Organization of Petroleum Exporting Countries, Russia or other producers about discounts or how to distribute such a deep cut. Producers need to decide which output levels are basically used to calculate how an interruption will be shared between Moscow, Riyadh and others.
The OPEC + meeting including Russia will be held on Thursday by video conferencing, followed by the energy ministers meeting from 20 countries (G20) on Friday.