Two big meetings this week won't save oil prices? Russia is ready to do both.

SMM: the global oil market has entered a crucial week as Saudi Arabia, Russia and other oil-producing countries struggle to convene a meeting aimed at curbing the collapse in oil prices. Over the weekend, OPEC + members discussed who was responsible for the oil crash, leading to the postponement of an emergency OPEC + meeting scheduled for Monday to April 9.

In addition, G20 energy ministers will hold an emergency meeting on Friday. On Tuesday night, Saudi Arabia said a "special" meeting of G20 energy ministers would be held on April 10 to ensure the stability of energy markets and that the G20 would take action to mitigate the impact of the virus on energy markets.

If it succeeds, it will be the first time the G20 has held a special meeting to solve the energy problem. These two meetings are important for an oil market that has "crumbled".

Since the collapse of the OPEC + talks in early March, oversupply and the coronavirus epidemic have led to a collapse in global demand and oil prices to an 18-year low. Despite the current rebound in prices, crude oil producers still face the threat of running out of storage space and being forced to shut down wells.

So far, it is uncertain whether an agreement can be reached between oil producers and whether the United States will participate in the negotiations. Next, let's take a look at the production situation of the world's major oil-producing countries before the emergency meeting, and their attitude towards the production reduction agreement.

Saudi Arabia: 12 million barrels per day (April)

The market is highly concerned about the postponement of Saudi Arabia's announcement of monthly oil pricing after the OPEC + emergency meeting. Saudi Aramco said that after the collapse of the OPEC + talks, its production would remain at an all-time high, at least until May, to compete for market share. On the first day of April, it increased oil production to more than 12 million barrels a day. Saudi Arabia has made it clear that it will not bear most of the production cuts this time.

Russia: 11.29 million barrels per day (March)

Russia's goal is to cut production by 1 million barrels a day with other major oil producers on the premise that the United States joins the cut agreement, according to four people familiar with the matter. Russian President Vladimir Putin says global oil production could fall by 10 million barrels a day. But Russia will not agree to take on more than 1/10 of the global production cuts, according to people familiar with the matter on condition of anonymity.

United States: 13 million barrels per day (end of March)

So far, Mr Trump has shown little willingness to participate in production cuts. He even threatened to impose high oil tariffs if oil prices remained at their lowest level in nearly two decades. But he also made it clear that he hoped his former allies would reach an agreement to cut production.

Iraq: 4.62 million barrels per day (March)

Iraq, OPEC's second-largest oil producer, is optimistic that a new oil production agreement will be reached at the OPEC + emergency meeting on April 9. The Iraqi oil chief said in a statement that all oil-producing countries are in the same boat and must work together to achieve the goal. The new production reduction agreement requires the support of oil-producing countries such as OPEC+ members, the United States, Canada and Norway.

United Arab Emirates: 3 million barrels per day (March)

OPEC's third-largest oil producer, after Saudi Arabia, has also increased production. Abu Dhabi has produced more than 4 million barrels a day so far in April, according to people familiar with the matter. The company produced 3.56 million barrels a day in March, according to a person familiar with the matter. Data show that the United Arab Emirates produced more than 100 million barrels of crude oil and condensate in March. The chief of the United Arab Emirates said on Sunday that OPEC + needed to convene an emergency meeting to ensure the stability of the oil market.

Kuwait: 2.67 million barrels per day (March)

Kuwait's state news agency quoted (Kuwait Petroleum Corp.) Vice President Hashemi (Hashem al Hashem) as saying that the country's oil production rose to 3.15 million barrels a day in April, an increase in line with planned production in the oil field.

Nigeria: 1.93 million barrels per day (March)

Africa's largest oil producer is also fighting for market share, providing major exports of crude oil at the lowest price relative to the international benchmark for more than a decade. This time, the country expressed its willingness to help restore stability in the global oil market, and Nigeria's oil resources minister, Timipe Silva (Timipre Sylva), said on Monday that Nigeria was ready to make the necessary sacrifices with other oil-producing countries to stabilize the crude oil market and prevent the collapse of the global economy as a result of the collapse in crude oil prices.

In addition Norway has been invited to participate in the meeting of oil-producing countries to be held on 9 April. Norway's oil ministry said it was ready to cut production. If other producers agree to slash production, Norway will also consider cutting production. If Norway, a non-OPEC member, were also represented at Thursday's meeting, it would be the first time it had joined the OPEC + oil-producing alliance.

Brazil is also ready to participate in the meeting. Brazil's energy minister received a call from the Saudi energy minister to exchange views on the situation in the oil market. Saudi Arabia also invited Brazil to attend the G20 meeting of oil ministers. Brazil's energy minister said on Monday that he was ready to attend the meeting to work out ways to stabilize the oil market.

It can be seen that most major oil-producing countries, including Russia, have expressed the need to reduce production in order to stabilize oil prices and are willing to participate in it.

Does it make much sense to reduce production?

Now, everyone is staring at the production cut agreement, because cutting production means that oil prices are saved. But Arthur Berman, an analyst at Oilprice, does not think so. first of all, he agrees with the global production reduction plan, but he also points out a key issue: it does not make much sense to stabilize oil prices.

Arthur Berman integrates the expectations of many analysts into one possible scenario. Based on expectations of how long the economy could shut down and how it would affect oil supply, demand and prices, he expects global oil demand to fall by as much as 18 million barrels a day by the second quarter of 2020. Unlike other models, it does not include expectations of a rapid recovery in the third quarter.

In Berman's view, he does not think the global economy will begin to recover in May and will not recover until June at the earliest. This means that people, including businesses, will have to rely on money created out of thin air by central banks, or the economy will collapse.

Demand is so weak and prices so low that most of the world's producers will be forced to shut down. The only reason Russia and Saudi Arabia may agree to cut production is that they now understand that they have no choice but to cut production.

There is no doubt that if OPEC + reaches an agreement to cut production, it will lead to a rise in oil prices, at least for a while. The problem is that, under the current circumstances, supply cannot fall as fast as demand. Once the market is aware of the problem, prices are likely to continue to fall sharply, even lower than in March.

Russia hoards cash in response to chronically low oil prices

Nor does Russia seem to have much confidence in the rebound in oil prices. Although Russia agreed to attend the meeting, it is hoarding hundreds of billions of dollars in foreign exchange reserves for fear that oil prices will remain low for a long time.

Russia has about $550 billion in contingency funds, but Russian President Vladimir Putin's support measures account for only about 2 per cent of Russia's GDP, according to (ING Bank), the Dutch international group.

During the 2008-09 global financial crisis, Russia spent 1/10 of GDO to cope with the collapse in oil prices, but as crude oil prices rebounded, the country rebuilt its foreign exchange reserves in just a few years. This time, Russia is preparing for a prolonged downturn in crude oil export revenues.

Alexandra Susrina (Alexandra Suslina), a budget expert at (Economic Expert Group), a Moscow think-tank that advises the government, said:

"Oil prices have fallen below levels anyone could have imagined. The Russian government needs to use its foreign exchange reserves carefully because that is all it has. "

Natalia Orlova (Natalia Orlova), chief economist at Alfa-Bank in Moscow, said the Russian government would wait until the end of May to see where oil prices were and whether they had more fiscal capacity to help.

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