By Adedapo Adesanya
A deal signed by members of the Organisation of the Petroleum Exporting Countries (OPEC) and 10 allies led by Russia to reduce the volume of crude oil production has ended.
The agreement expired on Tuesday, March 31, 2020 and efforts to extend it for three months to support prices of the commodity during this COVID-19 period were futile.
The three years between all 14 members of the cartel and 10 other non-OPEC members to cut production since the 2016 oil bust saw a new production cut totalling 2.1 million expire when Russia and Saudi Arabia could not agree to deepen cuts.
Crude prices, which had reached up to $70 in January, started plunging late January as a novel coronavirus started spreading, starting from China, the world’s largest importer of the black gold to other countries.
When things were getting out of hand, the oil cartel quickly called for a necessary intervention, but after a three-day meeting from March 4-6 in Vienna, Austria, Russia walked out the gathering, where the issue was being discussed.
Thereafter, Russia’s energy minister, Mr Alexander Novak, declared that all members of the alliance, which includes Nigeria, can start pumping the crude into the market at will.
The weekend after this declaration, Saudi Arabia took the first strike as it initiated a price war that triggered a major fall in the price of oil, with prices falling more than 30 percent as a result of the Kingdom discounting its crude grade and announcing an increase in its production.
As a result of this action by Saudi Arabia, crude prices have lost close to 70 percent since January 3 and the situation has threatened the oil industry.
On the demand side, the coronavirus outbreak that originated in China has became a global health crisis, as there have been over 861,110 cases, leading to trouble for major economies, industries, and energy consumption.
Forecasts now call for global oil demand to decline between 15 million and 20 million barrels per day, with more downward revisions likely to be made in the coming weeks.
Business Post had reported on Monday that Goldman Sachs estimated that this week alone, global oil demand would collapse by 26 million bpd or 25 percent.
On the supply side, Saudi Arabia and Russia have have not heeded to pressure even from the Donald Trump administration. Both countries have increased production after failing to secure an OPEC+ production agreement.
Saudi Arabia on Tuesday reaffirmed plans to boost production to a maximum 12 million barrels per day beginning today.
On Nigeria’s part, the country, which is Africa’s largest producer of the product, will commence a 2.5 million barrels per day output also effective from today as disclosed by the Minister of State for Petroleum, Mr Timipre Sylva, last week.
Other producers will also produce in their capacity, further adding to a market glut that will only worsen and make the commodity cheaper at the market. This could make the total world production forecast of 102.1 million barrels per day for this year to double.
Modupe Gbadeyanka