The COVID-19 coronavirus outbreak in China and its rapid spread has taken its toll on the global economy, driving down demand for oil in the first weeks of 2020.
In response, in the scheduled meeting on March 5-6 in Vienna, Saudi Arabia and other OPEC (Organization of the Petroleum Exporting Countries) states called for OPEC+ to a make drastic cut of 1.5 million barrels per day to reduce supply by a total of 3.6 million barells per day — insisting on a non-OPEC agreement. However, Russia rejected the plan. When the OPEC+ talks collapsed, the OPEC oil cartel scrapped all output limits. A dispute then broke out.
Russian oil companies had opposed such cuts, fearing loss of market share and of competitiveness against US shale production. They had previously in December agreed on a milder production cut of 500,000 barrels in 2020, and Russia wanted this to continue.
Saudi Arabia, the world’s biggest crude exporter, responded on March 8 by announcing unilateral price cuts with its biggest price cut in 20 years in a bid to win market share. This prompted the oil price to plummet and fuelled huge drops on stock markets the following day.
By March 9, oil had fallen to as low as US$31 from about US$66 at the end of 2019 as Riyadh said it would lift production to record highs, their biggest one-day move since the 1991 Gulf War.
On March 10, Saudi oil giant Aramco announced a plan to massively increase oil output despite falling demand during the COVID-19 coronavirus outbreak.
“At first glance, this looks like a battle between Russia and Saudi Arabia over oil policy,” said Chris Weafer of Macro Advisory consultancy. “But the context of the relentless rise in US oil production over the past 10 years is also an important factor.”
Both Russia and major OPEC producers have been “openly annoyed” with US producers’ refusal to participate in past production cuts, he added.
On Monday and Thursday last week, the crash in oil prices and fears over the global economic impact of the virus outbreak prompted a meltdown on stock markets.
(AFP and Reuters)
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Did you know?
The Organization of the Petroleum Exporting Countries (OPEC) was set up in 1960 to coordinate oil production policy among its members. In recent decades, however, it has increasingly cooperated with producers outside the group to manage the market.
As of January 2020, OPEC has 13 member countries: five in the Middle East, seven in Africa and one in South America.
OPEC+ includes 10 other non-OPEC members, including Russia.
(Lin Lee-kai, Taipei Times)
1. take its toll phr.
(zao4 cheng2 sun3 shi1)
2. barrel n.
3. cartel n.
(li4 yi4 long3 duan4 ji2 tuan2; ka3 te4 er3)
4. crude exporter phr.
(yuan2 you2 shu1 chu1 guo2)
5. plummet v.
(bao4 die2; zhong4 cuo4)
6. stock market phr.
7. production cut phr.
8. meltdown n.
(rong2 duan4 ji1 zhi4)
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