Due to the coronavirus outbreak decrease in the demand for fuel could be seen. OPEC, Russia- along with its allies- major oil producers have agreed to reduce the production of oil by 9.7 million barrels daily. This reduction in oil production is so far the greatest in numbers.
The last price cut was in 2008, and this year’s price cut is four times the last one.
This agreement has closed the price war that was long existing between Saudi Arabia and Russia.
The global lockdown has made a sharp fall in fuel consumption, thus hurting the oil producers, which are vulnerable at low prices due to their high costs. This reduction in the production of oil will be until April 2022.
Trump acknowledges this agreement between Saudi Arabia and Russia as per a statement from the White House “to return oil production to levels consistent with global energy and financial market stability.”
Trump has also thanked Russian President Putin and Saudi’s King Salman for making this deal. He added “Great deal for all!”
This cut globally will be a contribution from non-members, steeper voluntary cuts by some OPEC+ members and strategic stocks purchases by the world’s largest consumers.
OPEC sources have said that Brazil, Canada, Indonesia, Norway, and The United States will contribute four million to five million barrels per day.
Biggest Ever Cut In Oil Production
If Saudi Arabia’s leader OPEC does not fix the oversupply problem in the market which has been put by low prices, the US oil industry, the largest in the world will be in severe distress.
The Government of Canada has also welcomed this agreement, saying it as to achieve price certainty and economic stability.
A delay in this deal could be seen since Thursday, after Mexico, worried about derailing its plans to revive heavily indebted state oil company Pemex, hesitated at the production cuts it was asked to make.
Andres Manuel Lopez, the President of Mexico on Friday said that the US’s president made an offer to make extra U.S. cuts on his behalf, a not so common offer by the US, who has long railed against OPEC.
Estimated value says the global fall in oil production is 30 million barrels per day as more than three billion people are in lockdown due to the coronavirus.