OPEC’s crude production surged by the most in almost 30 years last month as its biggest members fought to dominate a global market devastated by the coronavirus crisis.
Saudi Arabia, the cartel’s most powerful member, pumped a record of more than 11 million barrels a day as it waged a price war against its former ally Russia, a Bloomberg survey showed.
Though they reached a truce by mid-April, striking a deal to cut vast amounts of supply, the Saudis continued to keep production high for much of the month -- even with demand suffering an unprecedented free-fall.
The kingdom’s surge leaves OPEC nations with an even bigger glut to deal with now, with the brief price war adding almost 100 million barrels of additional supply into an already oversupplied market, according to Bloomberg calculations.
Production from the Organization of Petroleum Exporting Countries soared by 1.73 million barrels a day in April, the biggest monthly increase since September 1990, according to survey data compiled by Bloomberg. It’s based on information from officials, ship-tracking data and estimates from consultants including Rystad Energy AS and JBC Energy GmbH.
The organization pumped 30.36 million barrels a day in April -- almost four times the amount they need to produce on average this quarter, data from the International Energy Agency shows. In the same month that OPEC opened the taps, world demand slumped by almost 30 million barrels a day as lockdowns to contain the virus grounded flights and froze economic activity.
The price war erupted between Saudi Arabia and Russia in early March, when Riyadh failed to persuade Moscow that deep supply cutbacks were needed to deal with the loss of demand from the pandemic. The OPEC+ alliance they had led for three years, aimed at coordinating output to prevent surpluses, fell apart.
Seeking to either change Russia’s mind, or at least defend its share of a shrinking market, Riyadh propelled output to a previously unseen 12 million barrels a day in early April.
Under immense pressure from its political allies in Washington, the kingdom then reversed course, reaching an agreement with Russia and the rest of OPEC+ on April 12 to slash supplies again. Those new cutbacks formally take effect on Friday.
Toward the end of April, the Saudis began to pare back in preparation for the new agreement, tempering their output average for the month to 11.4 million barrels a day, the survey showed.
Fellow Persian Gulf exporter Kuwait joined them in preemptive application of the curbs. Others, such as Nigeria, also began cutting early -- but only because a lack of customers and storage space forced them to do so.
The OPEC+ curbs, though adding up to a massive 9.7 million barrels a day, probably won’t offset the massive contraction in demand. The global oil industry is bracing for the abrupt and disorderly shutdown of oil fields producing crude with nowhere to go.
Oil prices sank to their lowest since 2002 in London this week, falling below $20 a barrel. The collapse was even more severe in the U.S., where futures briefly fell below zero last month because nobody wanted to buy expiring contracts.
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