They say the cure for the low price of oil is the low price of oil, meaning that it will drive out inefficient producers, lower supply, and cause prices to go higher.
OPEC and a group led by Russia, known collectively as OPEC+, is trying to speed that along. The group cut production by 1.2 million barrels per day a couple of years ago as the world economy slowed down and U.S. fracking added more supply. Oil prices moved higher, but the main benefit went to the Americans that were producing more.
Now OPEC+ is at it again. The group’s technical panel recommended a provisional cut in oil output of 600,000 barrels per day (bpd) in response to the coronavirus’ impact on energy demand, and is now awaiting Russia’s final position on the proposal.
The Joint Technical Committee (JTC) is not a decision-making body but does advise OPEC+.
If everyone agrees, the cuts would start in June.
Oil prices have fallen by more than $11 a barrel this year to $55, alarming producers. Saudi Arabia, OPEC’s de facto leader, and other OPEC members are worried that the continued spread of the virus could hit oil demand and prices further.
A further cut in production by OPEC+ suits American frackers just fine. They aren’t part of the group, so they aren’t bound by production quotas. Every barrel of oil not sold by a Middle Eastern producer is a barrel that an American company can sell. And if the supply cut by OPEC+ drives up the price of oil, then the Americans will get paid more as they sell more.