Opec agreed the biggest ever oil output cuts with the backing of Russia, the US and the wider G20 group of nations in an effort to bolster crude prices that the coronavirus outbreak has helped push to 18-year lows. The question now is what the agreement means for the future of the energy industry and whether it will help oil prices recover. After four days of talks, Opec and allies including Russia agreed on Sunday to cut a record 9.7m barrels a day of production – close to 10 per cent of global pre-crisis demand. A concession to Mexico, allowing it to curb production by a smaller proportion, meant the deal fell slightly short of the 10m b/d initially agreed on Thursday.
Curbs of 9.7m b/d for the so-called Opec+ group will stay in place for May and June, after which the cuts will shrink to 7.7mb/d for the rest of the year, and then 5.8m b/d from January 2021 to April 2022. Saudi Arabia and its Gulf allies – which accelerated production over the past month as part of a price war – will make bigger cuts, which people close to the kingdom said would take the tally for Opec+ countries to 12.5m b/ d.
Contributions from other producers, such as the US, Canada and Brazil could take the tally over 15m b/d. Yet these are not official curbs as part of the deal, but production declines caused by weak oi prices. The level might be even higher – closer to 20m b/d, Opec delegates said, if oil purchases by countries for strategic stockpiles are included.
The oil cuts deal is double the size of the curbs agreed following the global financial crisis and brings to an end a price war between Saudi Arabia, Opec’s de facto leader and largest producer, and Russia, a non-member that last month refused to sign up to more modest cuts.