Opec, Russia Agree to the Largest Oil Production Cut in History Amidst COVID-19 Pandemic
Saudi Arabia, Russia, and other oil-producing nations have finally agreed to cut production outputs by what could be the most massive cut in the history of OPEC.
On Sunday, April 12, sources reported that OPEC and other oil-producing countries have agreed to cut about 10% of the global oil supply. This cut of about 9.9 million barrels of crude per day is, however, just for May and June.
The oil cut decision was the outcome of a virtual marathon meeting- with hurdles at different points of the race. In the meeting held on Thursday, last week, OPEC+ reached a surface agreement on the oil cuts, but nothing was finalized.
Russia and other oil-producing nations agreed to the proposed cuts. Other non-members of OPEC, like Canada and Norway, as well had signaled to be a part of the cuts. OPEC also wanted Brazil and the United States to be a part of the cuts to achieve a further reduction of 5 million barrels per day.
However, Mexico, a member of the OPEC+ alliance, did not agree to the allocated cut. Mexican President, Lopez Obrador, had stated clearly that the country could only agree to 25% of the proposed cut. This resistance was the most significant hurdle the OPEC+ faced in its meetings.
But now, our OPEC+ sources have revealed that the crisis has been resolved. OPEC+ has finalized an agreement on what could be the biggest oil cuts ever. It appears that the oil-producing countries hope to keep reducing excesses on production until April 2022.
The impact of the COVID-19 pandemic has, so far, orchestrated the complexities in the oil market. It strained the budget of oil-producing countries. The U.S. Shale industry was mostly affected by the low oil prices that resulted from the pandemic. Hopefully, this imbalance will be corrected by the production cuts.
Earlier, United State President, Donald Trump had threatened OPEC leader, Saudi Arabia, with oil tariffs and some other strict measures. He had also put a call through to Russian President, Vladimir Putin, to initiate the talks with the country- all in a bid to see the oil crisis resolved- most especially to protect the U.S. Shale Industry.
Also, when Mexican President, Lopez Obrador, objected to the proposed cut, President Donald Trump had put a call through to the President to express his desire to aid Mexico in meeting the oil cut targets.’
Now that a solid agreement has been reached, there should be relative stability in oil prices.
Still, though, the world remains in crisis. The global demand for oil is estimated to have fallen by a third. And although this is the most massive cut in history, it might not be enough to correct the projected decline in the prices of oil that resulted from the lockdown and shutdown of the major economies of the world.
An agreement might have been reached, but it is estimated that Brent Prices might, regardless of these measures in place, fall back to $20 per barrel from the $32 mark that it closed last week.