OPEC+ countries meet today as Russian economy struggles

The OPEC+ group will meet virtually today to discuss oil production cuts and attempt to reach a consensus on when

OPEC

Photo: REUTERS/Leonhard Foeger

The OPEC+ group will meet virtually today to discuss oil production cuts and attempt to reach a consensus on when to ease them.

The cartel agreed in April to slash 9.7 million barrels per day for May and June and 7.7 million barrels per day for July through December. These production cuts were critical in counteracting the global oil devaluation catalysed by the ongoing COVID-19 pandemic.

Saudi Arabia wants to extend the current level of cuts for an additional three months, but Russia is lobbying for just one additional month. Hopes for an extension have pushed prices to three-week highs in the runup to today’s meeting.

A worsening domestic economic environment has pushed Moscow to seek a shorter extension; analysts estimate that OPEC+ cuts have cost the state budget $50 billion in tax revenue. This revenue serves as a critical stabiliser for the ruble and broader Russian economy, and a rebound in the oil market could provide a degree of stimulus without increased government spending. Moscow will lobby hard for measures that increase production and stoke global demand, but to be wary of a unilateral policy after a previous disagreement with Saudi Arabia led to a brief price war that cratered the value of oil. Expect a reasonable compromise—likely an extension of current production cuts for an additional one to two months—to be reached.

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