The collapse of the OPEC+ group partnership in March after failing to agree on measures to be taken to mitigate the impact of Covid-19 on global crude oil demand is a pivotal moment for the global oil and gas industry. The group was mainly responsible for stabilising global crude oil prices in recent years after the crash of global crude oil prices in 2014, mainly due to the shale oil revolution in the US.

The emergence of the novel coronavirus Covid-19 in China in December and further weakening of global crude oil demand has resulted in the fall in global Brent and WTI crude oil prices by about $10 in January and February.

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OPEC+ met in February 2020 and recommended a 600,000 barrels per day (bpd) reduction in output to deal with falling oil prices, effective from 1 April to stabilise the prices. However, Russia was unwilling to participate in the production cuts.

Saudi Arabia pushed for reducing output by about 1.5 million barrels per day (Mbpd) over and above the existing cuts to stabilise the falling oil prices when the group again met on 5 March to evaluate the full impact of Covid-19 on global demand and decide a production policy for the second quarter and the rest of the year. However, Russia rejected the proposal, as it apparently wants to wait and see the impact of Covid-19 on global crude demand, before taking any necessary action. As a result, global Brent and WTI prices fell by more than 30% and resulted in the collapse of OPEC+.

Brent and WTI crude oil prices trend from 1 January. Credit: GlobalData.

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Russia said that they can still possibly work with OPEC to stabilise the oil prices and the next OPEC+ meeting is likely to be scheduled in May or June 2020. However, Saudi Arabia seemingly rejected the Russian proposal saying that there is no need for OPEC+ meeting if there is no agreement on measures required to mitigate the impact of Covid-19 on crude oil prices. This is will have far-reaching consequences on global crude oil prices and demand.

The collapse of OPEC+ is a strategic inflexion point for the global oil and gas industry, as the group is mainly responsible for stabilising global crude oil prices for the past few years. As Covid-19 continues to spread unabated globally and continues to impact global crude oil demand, it remains to be seen whether OPEC+ will again re-group to stabilise the oil prices.