Algeria Urges Early Implementation of Oil Production Cuts as Prices Plummet

Mohamed Arkab, Algeria’s Minister of Energy, urges global oil producers to cut output. (CGTN Africa)

Algeria led an impromptu conference call with a few members of the Organization of Petroleum Exporting Countries (OPEC) on April 21 to discuss extra measures to address the oil price rout.

Oil prices collapsed in early April after COVID-19 caused an unprecedented decline in demand. This predicament was exacerbated by a sudden surge in global oil supply after Saudi Arabia and Russia’s price war led both countries to produce at maximum capacity and flood the market. This double shock resulted in a severe plunge in global oil prices.

The price drop has especially endangered states that depend heavily on oil, namely the so-called “fragile five.” In 2016, RBC Capital Markets identified five “fragile” OPEC producers—Algeria, Iraq, Libya, Nigeria, and Venezuela—that are at high risk of being pushed to the “verge of collapse” if oil prices become unstable.

While Algeria’s economy has made limited progress since 2016, it is still in a highly precarious situation. The country’s state finances remain heavily reliant on energy earnings, as oil and gas currently account for 60 percent of government revenue and 93 percent of export earnings. 

The latest oil price crash has forced the Algerian government to cut public spending by 30 percent and delay its economic and social projects; it has also hindered the country’s COVID-19 response. Algeria has reported 3,127 coronavirus cases as of April 24.

Many of the country’s drilling companies are at risk of bankruptcy due to the decline in prices and drop in state funds. Sonatrach, one of Algeria’s largest oil producers, halved its planned investment for 2020.     

After prices declined by more than 50 percent, members of OPEC+—an alliance of OPEC countries, Russia, Mexico, and eight others—convened for a virtual meeting on April 9. 

At the bequest of Algeria, which currently holds the organization’s presidency, OPEC+ agreed to temporarily cut the overall production of crude oil by 9.7 million barrels per day. The supply cut will go into effect on May 1 and last for two months. Production will remain limited for the next several months, with a cut of 8.0 million barrels per day from July through December and a 6.0 million barrel per day adjustment from January through April 2021. 

So far, this unprecedented output cut has failed to prevent the continued plunge in oil prices. On April 21, Brent crude prices fell to $18.10 per barrel, the lowest since December 2001. By comparison, Brent crude cost $74.39 per barrel in April 2019.   

Algeria gathered a number of OPEC members in an emergency meeting on April 21 to discuss implementing the May 1 oil cuts earlier. This impromptu meeting included four of the “fragile five” who are at greatest risk during what CNBC calls the “oil market’s greatest moment of uncertainty”—Algeria, Nigeria, Venezuela, and Iraq—in addition to non-OPEC oil producers Kazakhstan and Azerbaijan. 

Some countries, such as Nigeria, had already begun reducing production because they had nowhere to store the excess crude.

The most powerful oil producers who will be performing the bulk of the production cuts—Saudi Arabia, Russia, and the United Arab Emirates—were notably missing from the meeting.