High Stakes Strategy Hopes for “Good Friday” Agreement with Russia & Other Non-OPEC Partners
VIENNA, MARCH 5 – OPEC is very unified after its unusually short meeting Thursday in Vienna and will propose an additional cut of 1.5 million barrels per day (b/d) for the second quarter. But unity with its non-OPEC partners will be tested during the Friday meeting of the OPEC+ group as Russia reportedly remains opposed to any deeper cuts.
The strategy to forge an agreement is high stakes – there’s either a 1.5 million b/d cut or no cuts period, as the December deal expires at the end of March. No deal will send prices crashing far beyond any coronavirus demand destruction.
As the Iranian oil minister said to reporters leaving the OPEC headquarters today “there is no plan B.” The translation here is that there will be no compromise deal considered but delegates are hoping for a “good Friday” agreement.
Here’s a breakdown of the deeper cut proposal, according to the OPEC press release: OPEC will supply 1 million b/d in cuts and non-OPEC 500,000 b/d in cuts for the second quarter; December agreed cuts of 1.7 million b/d that expire on March 31 will be extended through the end of 2020.
If there’s an agreement on Friday, second quarter cuts will be 3.2 million b/d with third and fourth quarter cuts totaling 1.7 million b/d. Saudi Arabia is already contributing additional voluntary cuts of 400,000 b/d that we think will continue as a starting point.
As for Russia, our view is that it will reluctantly agree to the deeper cuts on Friday since no deal would essentially be the end of the OPEC-Russia cooperation, and Russia enjoys its current role as one of the two global co-managers of oil markets along with Saudi Arabia.