Global oil production cuts could end up rising to 20 million bpd, including forced reduction of output such as already underway in the United States, the Saudi Energy Minister, Abdulaziz bin Salman, told the Financial Times.
“If prices stay within the border of $35-$40 a barrel . . . I wouldn’t be surprised if natural declines are even more severe as we move into the next few months,” Saudi Energy Minister, Abdulaziz bin Salman, said.
Chances are prices will stay low: oil traders did not react with much enthusiasm to the news that OPEC+ would cut 9.7 million bpd in production starting May, nor did they cheer a decision by G20 producers to throw their weight behind the cuts and add their supply curbs that would bring the total reduction on global supply to over 13 million bpd. Earlier this week the chief executive of Gazprom Neft said prices could rise to $40-45 only under a best-case scenario and it would only happen towards the end of the year.
Natural declines are already happening: producers in North Dakota are idling rigs and wells, and Texas energy regulators are considering adding an official element to involuntary cuts that smaller producers are insisting on.
The crisis was brought about in part by Saudi Arabia’s declaration of a price war against Russia last month when it said it would raise its oil supply to 12.3 million bpd. Already strained by the rising coronavirus threat, oil prices tanked pretty much as soon as the statement was out.
“[Engaging in a price war] was an unwelcome departure from our end, but we had to because of a desire to capture some revenues versus sitting on our hands and doing nothing,” Prince Abdulaziz told the FT, adding that despite the price war, Saudi Arabia did not “have some sadistic approach of killing competition.”