Russia and Saudi Arabia may be ready to enact deeper oil production cuts to stabilize prices, the energy ministers of the two countries said in a joint statement.
The two will “continue to closely monitor the oil market and are prepared to take further measures jointly with OPEC+ and other producers if these are deemed necessary,” the statement said as quoted by Bloomberg.
Last week, OPEC+ agreed to remove 9.7 million bpd of oil from the market, with the cuts beginning next month and remaining in effect until the end of June, after which the group will start to ramp up production gradually.
From 9.7 million bpd in May to June, the cuts will decline to 7.7 million bpd for the period July to December 2020, and then further to 5.8 million bpd until the end of April 2022.
However, demand has continued to fall sharply because of the Covid-19 pandemic. Oil consumption in the United States alone—the world’s largest consumer of oil—has dived by a third, Reuters’ John Kemp wrote in his weekly column. Even though there is talk about reopening the economy, this will most likely happen gradually, as in Europe, and it will be at least a few months until demand begins to recover in any meaningful way.
Meanwhile, oil inventories are on the rise. The federal U.S. government was this week reported to be negotiating leasing space in the Strategic Petroleum Reserve to nine oil companies that have nowhere else to store their unsold and temporarily unsellable crude.
In this context, it is hardly a surprise that the effect the OPEC+ production cut announcement had on prices was muted, with most traders appearing to believe it was not deep enough, even with the additional cuts to be implemented by non-OPEC+ producers. The 20 million bpd figure is the one being thrown around as the size of the total reductions, and yet demand decline this quarter is seen at some 30 million bpd.