Opec and allies have agreed a historic oil deal that will cut global output by about 10% after a slump in demand caused by coronavirus lockdowns.
In an unprecedented deal signed made on Sunday, fellow oil nations, including the United States, put measures in place and agreed to reduce output by 9.7 million barrels per day (bpd) for May-June, after four days of intense discussions and pressure from US President Donald Trump.
Opec+, made up of oil producers and allies including Russia, announced plans for the deal on 9 April, but Mexico made the negotiations difficulyt after refusing the proposed cuts.
Mexican President Andres Manuel Lopez Obrador said on Friday that Donald Trump had offered to make extra cuts on his behalf, an unusual move by the US president who has often disagreed with OPEC. Trump said Washington would help Mexico by picking up “some of the slack” and being reimbursed later. He did not say how this would work.
The deal, considered the biggest oil cut ever, is more than four times deeper than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in production will stay in place until April 2022.
The only detail to have been confirmed so far is that 9.7 million barrels per day will be cut by Opec oil producers and allies. In Asia, oil rose over $1 a barrel on Monday in early trading with global benchmark Brent up 3.9% to $32.71 a barrel and US grade West Texas Intermediate up 6.1% to $24.15 a barrel.
Global oil demand is estimated to have fallen by a third as more than three billion people are locked down in their homes due to the coronavirus outbreak. Prior to that, oil prices slumped in March to an 18-year-low after Opec+ failed to agree cuts.
Talks were complicated by disagreements between Russia and Saudi Arabia, but on 2 April oil prices surged after President Trump warned the two nations to end their feud.
Total worldwide cuts will include contributions from non-members, higher voluntary cuts by some OPEC+ members and strategic stocks purchases by the world’s largest consumers.
Russia and Saudi Arabia will bear the brunt of the output cuts, with Saudi Arabia cutting production to under 8.5 million barrels a day – its lowest level since 2011. However,
Russia displayed very poor form in complying with previously agreed Opec+ cuts. So the market is unlikely to take the announced cut at face value it has been reported.
Meanwhile, three OPEC+ sources said that watchdog International Energy Agency (IEA), would announce purchases into stocks by its members, with an estimate of 3 million bpd expected in the next couple of months and will provide an update on Wednesday when it releases its monthly report.