Life is changing as we know, countries in the Gulf are assessing the risks and planning a way forward to emerge stronger out of this crisis. It would be a while before excess oil produced now is consumed and markets are able to strike a balance in the demand-and-supply equation.
What could push the global system towards that goal are sustained cuts in production and easing of lockdowns in countries worldwide. Oil consumption is down by a third, as a majority of people have been asked to stay at home to prevent infection and contain the spread of the coronavirus. Economies have come to a screeching halt, and the demand for oil is reflecting the new reality.
The world no longer consumes about a 100 million barrels per day like it used to until last year. Saudi Arabia, the world’s largest crude exporter, understands the disruption caused by the pandemic and is willing to lead with further cuts. The kingdom’s unilateral decision to cut production by a million barrels a day over and above what was agreed by the OPEC+ alliance recently is an effort to help the oil markets achieve some semblance of normalcy sooner than later.
Saudi Arabia is reducing its output to the lowest in about 18 years. The UAE, too, has joined hands and announced an additional cut of 100,000 bpd. Kuwait will be slashing its output by an additional 80,000 bpd. These measure should support recovery in the price of oil that is down almost 60 per cent this year.
But these three countries would need more support. Other major producers should voluntarily consider cutting production and support the price of oil. Our sobering new reality is changing the way we behave, travel, work, eat, and live.