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George Ma
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April 13 13:00

OPEC+ countries enter into agreement on record reduction of oil production

Such a massive production drop corresponds to a sharp drop in demand
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From May 1, OPEC+ participants will reduce production by 9.7 mn bpd. Deal will be valid for two years, and the total reduction in global production could reach about 19 mn barrels.

Following a video conference, OPEC (the largest cartel member is Saudi Arabia), Russia and other non cartel oil producers entered into an agreement to cut production by a total of 9.7 mn bpd for two years, from 1 May 2020 to early May 2022.
Deal to reduce production was called OPEC+, as the previous one, which lasted three years, from early 2017 to March 31, 2020. In total, the videoconference lasted four days, from April 9 to the evening of April 12. OPEC+ inludes 23 countries, but some G20 members, such as the U.S. and Canada, are not formally involved in the deal, but also intend to reduce production.
Kuwait, Saudi Arabia and the UAE decided to cut production by an additional 2 million barrels daily, Iranian Oil Minister Bijar Zangane wrote on Twitter. In addition, the G20 members agreed to low production by 3.7 million barrels. Thus, total reduction will be at least 15.4 million barrels per day. The total volume of production reduction may amount to about 19 mn barrels per day, Enegry Intelligence correspondent Amina Bakr said, citing sources.
Such a massive production drop corresponds to a sharp drop in demand due to the spread of covid-19 epidemic, by 20 mn barrels or 20%.
Russia will reduce oil production by 2.5 mn barrels out of the stipulated 9.7 mn barrels in the OPEC+ deal.
The cut of 9.7m barrels will be effective for 2 months (May-June), OPEC+ countries will reduce production by 7.7m barrels during the second half of 2020, and from January 1, 2021 only 5.8m barrels per day, according to the OPEC communiqué.
Due to the coronavirus pandemic in April, the demand for oil will drop by at least 16.8 million barrels per day, but the drop may be twice as much, by 30-40 million barrels per day (30-40% of global production), Bank of America analyst Karen Kostanyan warned earlier. In fact, OPEC+ and the G20 countries simply fixed the current situation, as even without an agreement Russia and Saudi Arabia would have had to reduce production in April, while the U.S. is already cutting production, the expert pointed out.