OPEC and its partners agree to expand record cuts in oil production

OPEC and its partners agree to expand record cuts in oil production
OPEC and its partners agree to expand record cuts in oil production

OPEC and its oil producing allies on Saturday agreed to extend historical production cuts of 9.7 million barrels per day for an additional month in an ongoing effort to balance the world oil market. The agreement was finalized during the group's video conference meeting.

Saudi Arabia's energy minister Prince Abdulaziz commented, "Today we have reason to be cautiously optimistic about the future, but we are not out of the woods yet and the challenges ahead remain." OPEC + meeting. He urged the group to show unity and take quick decisions.

Together we are strong, together we can restore the stability of oil markets and help rebuild the global economy, ”he said.

A persistent problem for OPEC + has been that nations are not meeting their set quota, and Saturday's deal depends on high levels of compliance. Nations that have failed to curb production from the allocated amount should approve additional cuts in July, August and September for noncompliance in May and June.

Prior to the meeting, the oil market was optimistic about a deal. On Friday, West Texas Intermediate rose 5.72% to $ 39.55, while internationally benchmark Brent crude rose 5.78% to $ 42.30. This was the sixth consecutive week of earnings for each contract, and is the highest deal since March 6.

"Today's agreement is a positive development, and until the second wave of Kovid-19 hits the world, it will be the backbone of a rapid recovery for the energy industry," said Björnar Tonhaugen, head of oil markets at Razad Energy. . "This is due to the fall in oil stocks that we will see as a result of production losses. Stocks are now keeping prices at relatively low levels and the faster they fall, the faster we will see prices rise."

Iraq is among the oil-dependent nations that have struggled to maintain low production. When Saturday's meeting began, Iraqi Oil Ministry spokesman Asem Jihad said in a statement that "despite the economic and financial circumstances facing Iraq, the country remains committed to the deal."

Under the pre-agreement, which was set up during a multi-day extravagant meeting in April, the 23-member group began halting production on May 1 at 9.7 million bpd, which would run until the end of June. The deduction will begin to decrease. From July to the end of 2020, 7.7 million bpd will be cut, followed by 5.8 million bpd from January 2021 to April 2022.

After Saturday's meeting, the 9.7 million bpd cut will run through the end of July and then be reviewed monthly. The next meeting will be on 18 June.

The biggest cuts in history occurred when oil demand fell off a cliff due to the coronovirus epidemic. The International Energy Agency estimates that nearly a quarter of demand fell in April, as billions of people worldwide stayed home in an effort to stop the spread of Kovid-19. The demand shock came as producers continued to pump oil, sending WTI into negative territory for the first time on record, while Brent fell to a 20-year low.

Since then, prices have steadily risen as economies have reopened and producers reduce production. In the United States, production fell from a record high of 13.1 million bpd to 11.2 million bpd in March, according to the US Energy Information Administration. In the US though, WTI is still down nearly 40% from its high January of $ 65.65.

"Although small-scale, this cut is important to balance the group's strategy, which has only been focused this year on price cuts, from market share recoveries to internal price wars and ultimately record cuts. Goldman Sachs Courtavlin Kay Damien wrote in a note to customers on Friday.

A closely watched meeting was initially scheduled for 9–10 June.

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