OPEC+ oil production cut deal comes to an end as prices drop below $20
An agreement among OPEC+ countries (comprised of the oil-exporting cartel and allied producers) to limit oil production will end today after Russia rejected an additional supply cut earlier in March.
The original Saudi-backed deal would have maintained the progressive decreases in OPEC+ production since 2017. However, concerns about the sliding price of oil led Moscow to refuse to further cut production. Petroleum products account for more than half of Russia’s exports.
In retaliation, Saudi Arabia increased production by 300,000 barrels per day on March 11, which further sank the price of oil to $25 per barrel after peaking at $58 in February.
While this move is intended to pressure Russia to make a deal, it may be the Saudis who must compromise. Both countries rely heavily on oil export revenue, but Saudi Arabia requires a higher oil price to attain a balanced budget, meaning that Russia can sustain production at low prices for longer. Saudi Arabia is also facing heightened pressure from the US to back down, as American oil firms have suffered from the price drop and may not be able to compete with Russian energy suppliers in Europe.
Although Moscow has announced its intentions to strike a new deal, do not expect the Saudis to immediately propose further Russian production cuts when an agreement is likely struck in April.
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