The Organisation of the Petroleum Exporting Countries (OPEC) and its allies agreed on adjusting downwards their overall crude oil production by 9.7 million barrels per day (bpd), starting on 1 May 2020, for an initial period of two months.
Thus, the OPEC+ members reached a compromise Mexico, the only oil producing country that did not agree on the measures taken during the 9th Ministerial Meeting last Thursday, which accepted a cut of 10 million bpd.
“On a positive note, OPEC+ today managed to reach a historic deal to make the single largest output cut in history, after a compromise was reached with Mexico,” commented Bjornar Tonhaugen, head of oil markets at Rystad Energy, an independent energy consulting firm. “However, even though OPEC+ has decided to attempt to bail out the global oil market, the group has unfortunately only come up with half of the ransom money. We believe the market’s disappointment will reflect in prices already from April due to the lack of size and the speed of the supply removal. At least the global oil market may not exhaust the storage capacity as early as it would without the voluntary production cuts.”
From 1 July 2020 to 31 December 2020, the total adjustment agreed will be 7.7 million bpd. It will be followed by a 5.8 million bpd adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022.
“This is at least a temporary relief for the energy industry and for the global economy,” added Per Magnus Nysveen, Rystad Energy Head of Analysis. “This industry is too big to be let to fail, and the alliance showed responsibility with this agreement. Even though the production cuts are smaller than what the market needed and only postpone the stock building constraints problem, the worst is for now avoided. The rest of oil producing countries should also prepare to cut output to align with domestic refineries and fuel consumption, which is expected down globally by 27 million bpd in April and 20 million bpd in May.”
OPEC+ took also note of the G20 Extraordinary Energy Ministers Meeting held last week, which recognised the commitment of the producers in the OPEC+ group to stabilise energy markets and acknowledged the importance of international cooperation in ensuring the resilience of energy systems.
Photo: OPEC’s official Facebook page.