BANDAR SERI BEGAWAN – Brunei will consider cutting oil output in cooperation with OPEC, the second minister of finance and economy said Tuesday, with the coronavirus pandemic sinking demand to a 25-year low and creating a global supply glut.
Just over a week ago, OPEC and allies led by Russia, a group known as OPEC+, agreed on historic production cuts with fellow oil nations, including the United States, that could curb global supply by up to 20 percent and prop up oil prices.
Speaking at the daily COVID-19 briefing, YB Dato Seri Setia Dr Hj Mohd Amin Liew Abdullah said the government is in discussions with Brunei Shell Petroleum and OPEC to see how Brunei can help stabilise the global oil market.
Reuters reported that OPEC+ nations, which includes Brunei, agreed to a voluntary production cut of 23 percent for May and June. However, the minister declined to confirm this figure.
“Without giving too many details on this, I think we are part of this bigger discussion. We collaborate with the OPEC+ group of producers, we are part of the discussion with them,” he told reporters.
US oil price plunges below zero as pandemic hits demand
Many analysts said the OPEC+ cuts came too late to prevent a market crash, with Saudi Arabia and Russia locked in a pricing war for much of March.
US oil prices plunged to -$38 yesterday, sinking into negative territory for the first time in history.
With stockpiles overwhelming storage facilities in the US, producers have been forced to pay buyers to take the barrels they cannot store.
“What happened overnight with WTI (West Texas Intermediate, the US benchmark for oil prices) is a true reflection of the demand and supply situation of crude oil today,” the second finance and economy minister said.
The output cuts proposed by OPEC+ would not be enough to drive up oil prices significantly, he added, saying global demand had fallen too much.
Since the outbreak began global fuel demand has fallen by 30 percent, as steps to fight the coronavirus have grounded planes, cut vehicle usage and curbed economic activity.
However, the minister was optimistic Brunei could still offload its oil shipments.
“This is the time when you really need to make sure that you always have a diversified portfolio of buyers. A lot of our buyers are in this Asia Pacific region — and now China has started up some of their factories and their economy is starting to move.”
“The question is not so much about whether you can sell, but I think it’s about what price it would sell at,” he added.
Low oil prices will weigh heavily on Brunei’s economy, as oil and gas accounts for two thirds of GDP.
Brent Crude, the international benchmark for oil prices, was trading at US$19.61 on Tuesday evening — an 18-year low.
YB Dato Dr Hj Mohd Amin said despite the negative impact the outbreak has had on sectors such as tourism, aviation and hospitality, the government still expects to see “respectable growth” this year, after the economy grew by 3.9 percent in 2019 — its highest rate in 13 years.
“Many businesses continue to operate. Many of us continue to go to the office and work,” he said, explaining that Brunei’s restrictions are not as severe compared to other countries.
Economic growth is also expected to be boosted by Hengyi’s crude oil refinery and petrochemical plant, a $3.45 billion FDI project which began operations last November.
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