A global deal reached Sunday will see oil output cut by record amounts, but the Alberta government will make no move to further curtail production, Energy Minister Sonya Savage said.
The Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia have agreed to cut oil output by a record amount – representing around 10 per cent of global supply – to stabilize prices as the COVID-19 pandemic has decimated demand for oil. After four days of marathon talks, the group, known as OPEC+, agreed to reduce output by 9.7 million barrels a day for May and June.
In the largest ever cut of oil output, producers will slowly relax curbs after June, although reductions in production will stay in place until April, 2022. Total global cuts will include contributions from non-member countries and steeper voluntary cuts by some OPEC+ members.
“Will it solve the production imbalance? No. But does it help? Yes, it does. We’re a lot better off with it than we were three days ago,” Ms. Savage told The Globe and Mail on Sunday.
Alberta producers have been under government-mandated production cuts since early 2019 to help alleviate a supply glut arising from transportation backlogs. On top of that, the Canadian sector has already slashed output and and capital spending in response to decreased demand because of COVID-19. Ms. Savage said there were no requests from OPEC+ for the province to further hike curtailment limits.
Ms. Savage said Alberta production is already at least 400,000 barrels a day below the 3.81 million allowed under curtailment. By May, she expects output to be about one million barrels lower than the current limit.
With North American storage nearing capacity and refineries already crimping their crude intakes, “it will take a while to clear the glut,” Ms. Savage said, “but this goes an awfully long way to being able to get to a balanced place."
Sunday’s deal ended a month-long price war between Saudi Arabia and Russia, two of the world’s biggest producers. Both countries flooded global markets in a quest for market share at the same time as countries imposed restrictions on the movement of people to curb coronavirus infections. A resulting drop in oil consumption has been estimated as much as 30 million barrels a day, or nearly a third of normal output, and oil prices have tumbled to 18-year lows.
Canadian Minister of Natural Resources Seamus O’Regan said in a written statement Sunday he welcomed any news that brings stability to global oil markets.
He said the next step for Canada will be continued co-operation with the G20, which held oil crisis talks parallel to the OPEC+ meeting.
Energy ministers of the G20 met via video conference Friday to discuss their roles in boosting crude prices, though the Saudi-led proceedings failed to extract specific new output cuts from countries outside the OPEC fold. Instead, it ended with broad commitments to work collectively to provide stability to energy markets, and a decision to form a focus group to co-ordinate responses.
The meeting was held hours after OPEC+ arrived at a deal to take 10 million barrels a day of supply off the market – only to have Mexico balk at the last moment. That started intense talks between U.S. President Donald Trump and Mexican President Andres Manuel Lopez Obrador on how the U.S. could contribute to Mexico’s prescribed cut of 400,000 barrels a day and rescue the deal.
Ms. Savage breathed a sigh of relief when Mexico agreed to the final deal Sunday.
“We were pretty certain they were going to get across the finish line, because there isn’t a second option. There is no Option 2 that is anything short of a catastrophe and failure for the world,” she said.
Raymond James analyst Jeremy McCrea said the market will likely look for more concrete actions from G20 countries before it gets excited.
The OPEC+ deal, he said, was “one small step,” albeit an important one.
“What you need to see is a G20 co-operative action plan here that is not just words, but action. Words are nice, but what the market needs is concrete timetables and movement before investors are going to be excited,” he told The Globe on Sunday.
Mr. O’Regan said Canada “is committed to achieving price certainty and economic stability,” and will continue working with provinces, businesses, labour and Indigneous groups – and international partners – to achieve that goal.
With a report from Reuters