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Winners in the OPEC+ détente

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OPEC

By Sonny Atumah

The world rallied round crude oil over supply and somehow resolved the matter. It appears quiet in the roller coaster business. Where the stick approach did not work, carrot did. That is diplomacy at work.  Oil producers agree on a deep and prolonged supply cut, to prevent crude oil prices falling back again. Nevertheless, history has recorded it that what a live meeting could not resolve early last month, a virtual meeting did courtesy of COVID-19 last week. With video conferencing, the oil world broke the physical barrier, achieved result with no travelling man. It was likebreaking the glass ceiling on April 9 as the United States, Brazil, Canada and Norway, joined OPEC led by Saudi Arabia and its allies led by Russia in what could be termed the “OPEC++” virtual meeting.That virtual meeting is a signal that the test run on the Fourth Industrial Revolution, also known as Industry 4.0 is almost complete. The fourth is the current age of robotics, automation and the internet of things. The oil and gas industry is indeed undergoing digital and technological change in its methods and processes.

The drop in oil prices was a trigger by a geopolitical petty quarrel between Russia and Saudi Arabia, two of the world’s most influential oil producers, in addition to the demand slump caused by the COVID-19 pandemic.Can the détente or easing of hostilities dent the supply glut? As the OPEC+ deal collapsed in March, Saudi Aramco raised output to 12.3 million barrels per day, bpd in April as it cuts prices in a battle for market share.Saudi Arabia in last weekend’s global deal agreed to 8.5 million barrels per day production cut for May and June. After June, the 10 million barrel cut will be tapered to 7.6 million a day until the end of the year, and then to 5.6 million through 2021 until April 2022.Nevertheless,Saudi Arabiadelayedits Mayofficial selling price (OSP) OSPs announcement severally until after finalizing the OPEC+ reduction agreement.It is selling oil more cheaply to Asia to beat Russia, Iran and other producerswhile keeping prices flat for Northwestern Europe and raising them for the United States.

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The Saudis have opened the taps for millions of barrels of crude a day until May with at least 10 very large crude carriers, VLCC to haul about 20 million barrels of oil from the Saudi port of Ras Tanura. The competition from rival suppliers to the Asian market after India cut demand by 70 percent is a problem to the de facto OPEC leader.Other Gulf producers like the United Arab Emirates and Kuwait may follow Saudi Arabia with discounts in prices to gain market share.About 20 million barrels of April-loading crude from West Africaremains unsold.The impending large volumes will increase stockpiles in various market destinations in Europe and Asia where refiners are cutting output or shut plants following coronavirus lockdowns.It means the hurtful relation between Russia and Saudi Arabia is yet to abet. During the week, global benchmark Brent crude traded down at US$27.38 (-7.50 percent), on Wednesday night,while the U.S. West Texas Intermediate (WTI) traded at US$19.51, approximately -2.98 percent.

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In context, the crude oil market collapse of July 2014 was the effect of the shale boom that has transformed the United States into the world’s largest producer. The Russians insist that America must do more than just let market forces reduce its own record production.President Donald Trump got a deal without ratcheting down American oil production.  Who is the winner in the melee? Analysts appear to give it to Trump, whobrokered the deal with Russian President Vladimir Putin, King Salman of Saudi Arabia and Mexican President Andres Manuel Lopez Obrador.President Trump says he used to hate OPEC but now he has reconsidered. Analysts say historically,Trump, OPEC’s harshest critic, has now pressed OPEC to stop flooding the oil market for a ramp in prices. He becomes the first American president to push for higher oil prices in more than 30 years, reversing his personal opposition to the cartel. Could he have bitten his tongue off in his U-turn on OPEC? Some would say Trump has used a trump card to have his way.

Trump says the big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States.His chess game is coming in a presidential election year inprecarious America today. Consider Trump in a section of his 2011 book “Time to Get Tough”as he came upon OPEC strongly. According to Trump,It is also time for America to get tough with OPEC that controls 80 percent of the world’s accessible oil. These people sit around a table and collude to set the price of oil. Fixing prices like this is illegal in America and yet we sit idly by and let them squeeze us out of every penny they can get. This is sheer lunacy. We need to be suing OPEC for violating antitrust laws.Some say the OPEC ++ and the G-20 nations virtual meeting, is to get the big bite. The ultimate for trump is incorporating new technologies to make petroleum energy cleaner and more efficient, for a gradual changethrough the introduction of renewable resources. This should be ofconcern to oil dependent nations like Nigeria.

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