Members of Opec, which comprises the world’s largest oil producers, have agreed a historic deal to reduce global oil production by almost 10% starting in May.
According to The Guardian, the deal marks a truce in the oil price war between Saudi Arabia and Russia which had crescendoed in recent weeks with both countries announcing they would pump record crude volumes.
The meeting ‘reaffirmed the continued commitment of the participating producing countries in the ‘Declaration of Cooperation’ (DoC) to a stable market, the mutual interest of producing nations, the efficient, economic and secure supply to consumers, and the fair return on invested capital’.
Output was adjusted as follows:
Adjust downwards overall crude oil production by 9.7 mb/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020. For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 7.7 mb/d. It will be followed by a 5.8 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022. The baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 mb/d. The agreement will be valid until 30 April 2022, however, the extension of this agreement will be reviewed during December 2021.
The oil price plunged to 18-year lows of less than £23 a barrel as fears of a global economic recession and reduced consumption as a result of coronavirus caused oil demand to fall by an average of 27m barrels a day this month.
The US expects oil production to fall this year though oil prices climbed to $31 a barrel in response to the Opec announcement though some critics have warned that the deal is too late to positively impact the global oil markets.
It is thought the Coronavirus pandemic will reduce demand by an average of 11m barrels of oil a day over the course of the next 12 months.