World trade has dropped 32%, and the best scenario – as we hit close to 1.5 million confirmed cases of coronavirus – is containment by July. At the same time, JPMorgan forecasts a 40% drop in GDP, and the containment of oil producers is just as complicated with the addition of political variables.
Fossil fuels: the powerlessness of OPEC
While COVID-19 is reducing global demand for oil to disastrous levels with predictions of the worst to come, OPEC is no longer relevant, nor is OPEC +. In this world, the cartel is either global or helpless. In fact, the deal to break or break to end the price war and cut production fell to the United States and Mexico – about as far as possible from OPEC. Either there is no more OPEC, or OPEC is now, officially or unofficially, a global cartel.
Realistically, the world would need about 20 million bpd in cuts to even think about changing market sentiment and preventing prices from falling further.
Instead, we got a reduction of 10 million bpd, effective May 1, for two months. After that, production reductions will be reduced to lower amounts until April 2022. OPEC has set the benchmark for reductions in production levels of October 2018, with the exception of Saudi Arabia and Russia, whose benchmark will be 11 million bpd.
This is a figure that will only partially compensate for the price war + the oil disaster pandemic.
And even this figure is in question because it does not depend on a …