OPEC+ Production Cut Agreement: "Oil Prices' 'Urgent Fire' Extinguished, but Variables Like US Production Cuts Remain"

[Asia Economy New York=Correspondents Baek Jong-min and Na Ju-seok] As oil-producing countries have reached the largest production cut agreement in history, the oil market is reacting as if the "big fire" has been put out for now. With measures coming from OPEC+ (the Organization of the Petroleum Exporting Countries and its allied non-member countries), attention is now focused on how non-member oil-producing countries like the U.S., where many shale companies operate, will respond.

After the agreement was reached within OPEC+, the market analysis suggests that the market will stabilize in the short term. Morgan Stanley, a U.S. investment bank, revised its second-quarter forecast for West Texas Intermediate (WTI) and Brent crude oil prices from $22.5 to $25 each. Saudi Energy Minister Abdulaziz bin Salman said immediately after the negotiation, "This proves that OPEC+ is alive," and added, "I am very pleased."

Until now, the international oil market had experienced a record-breaking plunge. Due to the COVID-19 pandemic, governments worldwide implemented lockdown policies, resulting in about a one-third decrease in oil demand. Meanwhile, Saudi Arabia announced plans to increase supply to an all-time high, creating an unprecedented supply-demand imbalance.

As a result, U.S. energy companies, the world's largest oil producers, faced bankruptcy threats, prompting U.S. President Donald Trump to intervene. While President Trump had previously advocated for lower oil prices from the perspective of U.S. consumers, he reversed his stance 180 degrees this time by leading the production cut agreement. Through phone calls with Russian President Vladimir Putin and Saudi King Salman bin Abdulaziz Al Saud, President Trump helped broker the production cut deal. Consequently, foreign media have credited President Trump as the key contributor to this agreement. However, Bloomberg News also noted, "President Trump became the first president in 30 years to call for higher oil prices."

Following the agreement, attention has turned to whether the U.S. will participate in the production cuts. It remains unclear whether the U.S. will join the cuts after the agreement. During the negotiation process, when Mexico refused the uniform production cut demand, President Trump stated that the U.S. would take on Mexico's share of the cuts. However, how the cuts will be implemented remains uncertain. The Wall Street Journal (WSJ) reported that it has not been decided whether the U.S. will bear the cuts Mexico was supposed to handle or how the cuts will be carried out if they proceed. Russian Energy Minister Alexander Novak expressed optimism in an interview with Interfax News Agency, saying, "The U.S. is ready to cut daily oil production by about 2 to 3 million barrels."

For now, calls for reducing oil production within the U.S. are coming from the private sector. WSJ introduced that Matt Gallagher, CEO of shale company Parsley Energy, has proposed that production cuts are necessary in Texas, a representative oil-producing region in the U.S. CEO Gallagher argued, "If U.S. oil production is reduced to 6 million barrels, half of the current level, by 2022, the industry can survive without government intervention or capital injection," and added, "We must strive to keep the pulse of the U.S. oil industry beating for the coming years through production cuts."

In this regard, the Texas Railroad Commission, which oversees oil fields in Texas, plans to hold a hearing on the 14th to gather opinions on whether to implement production cuts. Forbes, an economic media outlet, described this hearing as "a historically significant moment."

This content was produced with the assistance of AI translation services.