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As the impact of the Covid-19 pandemic on oil demand becomes more apparent, OPEC, the world's largest oil producing organization, and its allies, led by Russia, have finally decided to cut oil production from May 1, 2020, in an attempt to stabilize the oil market and support prices
.
The group called "OPEC+" met in March and decided to extend the production cuts, but Saudi Arabia and Russia failed to reach a consensus, leading the two countries to announce production
increases starting in April 2020.
The development shocked the oil market and caused the global benchmark oil price to fall below
$30 per barrel.
"Given current fundamentals and market consensus, participants agreed to cut their overall crude oil production by 10 million b/d starting May 1, 2020, for two months and ending on June 30, 2020," OPEC said
in a statement.
The agreed total adjustment was 8 million barrels per day for the subsequent six-month period from 1 July 2020 to 31 December 2020, followed by an adjustment of 6 million barrels
per day for the 16-month period from 1 January 2021 to 30 April 2022.
"The basis for calculating the adjustment is October 2018 oil production, with the exception of the Kingdom of Saudi Arabia and the Russian Federation, both at the same baseline level of 11 million b/d
," OPEC said.
The agreement is valid until April 30, 2022, however, the agreement will be reviewed in December 2021 for extension
.
”
WoodMac's Ann-Louise Hittle commented: "A reduction of 10 million barrels per day may seem small compared to some very high demand loss estimates, but if containment measures are implemented, when lockdowns are in place to contain Covid-19 and demand is minimal, this will slow the growth of storage volumes and avoid a second-quarter oversupply
.
" ”
Hittle added that the announced production cuts would provide very strong support for oil prices in the second quarter and would ease inventory pressures and prevent the collapse in oil prices witnessed in March
.
According to S&P Global Platts analysis, April and May are likely to have the worst impact on demand, which is expected to fall by about 16 million barrels
per day.
Given the double impact of the Covid-19 pandemic and historically low oil prices, major oil and companies around the world have announced significant spending
cuts in 2020.
As the impact of the Covid-19 pandemic on oil demand becomes more apparent, OPEC, the world's largest oil producing organization, and its allies, led by Russia, have finally decided to cut oil production from May 1, 2020, in an attempt to stabilize the oil market and support prices
.
The group called "OPEC+" met in March and decided to extend the production cuts, but Saudi Arabia and Russia failed to reach a consensus, leading the two countries to announce production
increases starting in April 2020.
The development shocked the oil market and caused the global benchmark oil price to fall below
$30 per barrel.
"Given current fundamentals and market consensus, participants agreed to cut their overall crude oil production by 10 million b/d starting May 1, 2020, for two months and ending on June 30, 2020," OPEC said
in a statement.
The agreed total adjustment was 8 million barrels per day for the subsequent six-month period from 1 July 2020 to 31 December 2020, followed by an adjustment of 6 million barrels
per day for the 16-month period from 1 January 2021 to 30 April 2022.
"The basis for calculating the adjustment is October 2018 oil production, with the exception of the Kingdom of Saudi Arabia and the Russian Federation, both at the same baseline level of 11 million b/d
," OPEC said.
The agreement is valid until April 30, 2022, however, the agreement will be reviewed in December 2021 for extension
.
”
WoodMac's Ann-Louise Hittle commented: "A reduction of 10 million barrels per day may seem small compared to some very high demand loss estimates, but if containment measures are implemented, when lockdowns are in place to contain Covid-19 and demand is minimal, this will slow the growth of storage volumes and avoid a second-quarter oversupply
.
" ”
Hittle added that the announced production cuts would provide very strong support for oil prices in the second quarter and would ease inventory pressures and prevent the collapse in oil prices witnessed in March
.
According to S&P Global Platts analysis, April and May are likely to have the worst impact on demand, which is expected to fall by about 16 million barrels
per day.
Given the double impact of the Covid-19 pandemic and historically low oil prices, major oil and companies around the world have announced significant spending
cuts in 2020.
