OPEC and its allies have agreed to cut 9.7 million barrels per day from global oil production. It took an emergency meeting last night to finalize the historic agreement.
The agreement ends a price war between Saudi Arabia and Russia that saw oil prices plummet. This happened as both countries increased production despite a lack of demand.
The original plan was for the OPEC+ group to cut production by 10 million barrels per day. This amounted to around 10% of global supply.
OPEC Agreement Reached
The first meeting on Thursday ended without a deal. This happened after Mexico refused to agree to its part of the production cut. This amounted to 400,000 barrels per day.
President Trump spoke with Mexican President Andrés Manuel López Obrador. Trump told Obrador that the United States would be willing to “pick up some of the slack” on Friday. He added that the country would cut a bit of production so that Mexico wouldn’t have to cut as much.
President Trump went on to say that Mexico would reimburse the US at a later date. He, however, didn’t provide any immediate details of how that would occur.
As part of the final agreement during last night’s meeting, Mexico agreed to a cut of 100,000 barrels per day.
The OPEC+ nations are hoping that other oil-producing countries that aren’t a part of the group will implement their own production cuts. Some of these countries include the US, Canada, and Norway. They’re hoping these countries would do so to help bring down global supplies and find a balance in the market.
President Trump has stopped short of promising any production cut from the US. Meanwhile, Energy Secretary Dan Brouillette said on Friday that about two million barrels per day of production would have been taken offline by the end of the year. This is due to falling demand, with that number possibly climbing to as high as three million.
Per Magnus Nysveen, head of analysis at Rystad Energy said “This is at least a temporary relief for the energy industry and for the global economy. 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.”
Chris Midgely, the global head of analytics at S&P Global Platts’ agrees with Nysveen, saying the production cut “won’t be enough to bring sustainable, restorative support to oil prices, not unless OPEC goes further.”
Both analysts believe that the cuts aren’t enough in the face of disappearing demand due to the coronavirus pandemic.
Tom Kloza, head of global energy analysis at Oil Price Information Services ays demand for gas is at its lowest level since 1968, and data from the Energy Information Administration shows that for the week ending April 3, gas usage dropped 48% year-over-year, down to 5.065 million barrels per day.
Patrick DeHaan, head of petroleum analysis at GasBuddy.com, says demand is in “free fall.”
“We’ve seen prices plummet consistent with something that we have almost never seen…By all metrics we really are in some unprecedented times for retail gasoline and certainly oil prices as well,” he added.
The OPEC agreement should last through the end of June. If the global economy continues to deteriorate, however, the group may have to meet and negotiate even further cuts.
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