"Declaration of Cooperation" of OPEC + Countries to Remove Extra 20 Million bpd from Market

According to the OPEC + video consultations held on April 9-12, twenty-three oil-producing countries signed the “Declaration of Cooperation” in order to reduce daily oil production in the world, which will remove its excess from the market, which affected the most severe drop in oil prices.

The Ministry of Energy of Azerbaijan believes that taking into account the agreement on reductions for other oil producing countries of the world that are not members of OPEC +, a total of 20 million barrels of oil per day will already disappear from the world oil market on May 1 and within two months, which will be a huge contribution to stabilizing oil prices in a situation where the Corona Virus pandemic has drastically weakened global demand for black gold.

Now the excess oil in the market is estimated at 30-35 million bpd, but OPEC + will launch a two-year program on May 1 to liquidate it.

It is also important that without waiting for May, Saudi Arabia, Kuwait and the UAE agreed to reduce their total production planned for April by 2.7 million bpd.

OPEC + countries, from May to July, will total reduce production by 9.7 million bpd.

“This decision encourages countries outside the OPEC + format to reduce production, and for the first time other large oil producers are joining this process. An example of this is the US commitment to lower 300,000 bpd for Mexico. Mexico itself will reduce production by 100,000 bpd in May-June,” the Ministry of Energy of Azerbaijan explained.

In general, it is expected that major oil producers in the world, such as the United States, Canada, Indonesia, Norway and Brazil, will voluntarily reduce oil production by 4-5 million bpd in solidarity with OPEC + countries.

In this way, starting in May, 20 million b / d of excess oil will leave the market, putting pressure on prices.

According to the latest amendment to the “Declaration of Cooperation” introduced on April 12 by OPEC + countries, the total decrease in daily oil production in OPEC + countries from July 1 to the end of the year will amount to 7.7 million barrels, and from January 2021 to April 2022 - 5.8 million barrels per day.

There are 3 segments in Azerbaijan, which are currently responsible for oil production - SOCAR (independent production at OGPD, outside international contracts), SOCAR joint ventures (joint ventures) and a key project for Azerbaijan - Azeri-Chirag-Gunashli with oil reserves of 1 billion tons (half already extracted since 1997).

According to  Ibrahim Ahmedov, deputy head of SOCAR’s public relations department (ASTNA), "issues related to the specific implementation of the OPEC + agreement in Azerbaijan are currently being considered."

“SOCAR reduction issues are currently being considered. But the Ministry of Energy will have the details,” he said.

Advisor to the Minister of Energy of Azerbaijan Zamina Aliyeva told ASTNA that in the coming days, nuances of how production will be reduced in the country as part of the new OPEC + deal may be announced.

It is clear that in the new quota of Azerbaijan at least about 70% will be accounted for by ACG, the rest - according to OGPD and JV SOCAR.

ASTNA also decided to explain the position of Mexico, because of which the historical OPEC + deal would almost have been torn down if there had been no US intervention.

Mexico officially announced that it had previously signed contracts for the sale of the bulk of its oil at $ 49 / bar, they are being implemented and there is no reason for it to reduce its production by as much as 400 thousand bpd.

But the “Mexico-US link” in the oil sector is obvious, and many experts point out the tricky move of both of these countries during the OPEC + consultations.

Thus, Anas Al-Haji, an expert on energy markets, provides such an explanation.

“First, Mexico, producing 1.2 million bpd, exports its oil mainly to the United States. Secondly, many American oil refineries operate under Mexican oil, and in Mexico itself there are oil refineries, behind which American companies stand. Thirdly, Mexico suffers from a gas shortage because focused specifically on the export of its oil. All this indicates the interdependence of these North American countries and the coordination of their actions,” said the Arab expert.

American experts believe that even the implementation of the new OPEC + deal is actually a “time out” to give time to the overcrowded oil storage facilities in the world a little offload. But against the backdrop of the Corona Virus pandemic, the situation in the oil industry in the world will be critical until the end of the year (the head of the Ministry of Energy of the Russian Federation, Alexander Novak, said this last night).

Thus, oil prices can only rise for a short time, and hardly to the indicators of 2019.

The oil market, where the benchmark Brent was trading at $ 34 per barrel in the morning, fell to $ 30.8 / barrel by mid-day. At the end of last week, Brent fell to $ 20-22 / barrel, and its growth is unlikely to exceed $ 40, while the budgets of many oil-producing countries for 2020 were calculated at $ 55 / barrel or more.