Delegates from Russia and the Saudi-led OPEC agreed in principle Thursday, April 9, to slash oil production in an effort to raise global prices during the coronavirus pandemic, according to a Bloomberg News report. An OPEC delegate told Bloomberg the cartel and Russia would collectively cut production by about 10 million barrels per day for May and June.
American crude oil has lost about two-thirds of its value since the beginning of the year and currently sits in the range of $20-25 a barrel. Many producers in North Dakota’s Bakken formation require prices closer to $50 a barrel to turn a healthy profit, North Dakota Petroleum Council President Ron Ness previously told Forum News Service.
Any increase in prices that comes out of the production cut would help producers in the Bakken bear the bleak conditions that have plagued the industry over the last month, Ness said.
Oil producers enjoyed prices above $60 a barrel at the beginning of the year, but prices initially began to decline in late January as the coronavirus epidemic put a stranglehold on the Chinese economy. Demand for oil swiftly declined in the Asian country, and then the rest of the world, as manufacturers, freight companies and airlines cut back operations.
Crude prices then took a further nosedive in early March when Saudi Arabia and Russia, two of the world’s largest producers, locked horns in a price war after Russia refused to join OPEC in cutting production to drive up global prices. Saudi Arabia hit back by lowering its own prices and flooding the market with more oil.
The conflict caught American oil producers in the crosshairs, causing many to lay off workers. Whiting Petroleum, one of the Bakken’s major oil companies, filed for Chapter 11 bankruptcy last week in an effort to restructure its massive amount of debt.
“For (Russian and Saudi Arabia) to be flooding the market with oil was very devastating to our producers,” Ness said.
North Dakota companies have slashed production by at least 175,000 barrels per day since early March, and more production cuts in the Oil Patch will come in the near future, Ness said.
President Donald Trump and Sens. John Hoeven and Kevin Cramer, both R-N.D., pressured the foreign oil producers to end the monthlong price war.
Cramer previously proposed an embargo against Russian and OPEC oil and the withdrawal of American troops protecting Saudi oil assets. The first-term senator called Thursday’s news “a step in the right direction,” but he said the impact of the price war could be felt for years.
“I look forward to reviewing more details as they come out and seeing if these actions are enough to provide market stability and will be watching closely to ensure follow through by the parties,” Cramer told Forum News Service. “If not, the United States will be further empowered to take immediate action.”
The end of the price war it is certainly welcome news for companies but won’t alleviate the “absolute demand destruction,” Ness said. Some traders estimate global demand for oil has fallen by as much as 35 million barrels a day.