Opec`s Supply Cut Agreement With Russia

Oil ministers from the Organization of petroleum exporting countries and other Russian-led producers met via video conference on Saturday and agreed to continue to cut 9.7 million barrels per day – or about 10 percent of world production in normal times – until July, according to an OPEC press release. In April, OPEC first agreed to cut supply by 9.7 million barrels per day (bpd) between May and June to support prices that collapsed due to the coronavirus crisis. These reductions are expected to rejuvenate from July to December to 7.7 million bpd. Iraq, which had one of the worst compliance rates in May, agreed to further cuts, although it was unclear how Baghdad would reach an agreement with oil companies to curb Iraqi production. [OPEP/O] In response to falling prices, several oil producers in North America have cut off drilling for new wells. [60] Shale oil producers in North America generally demand oil prices of more than $40 per barrel to maintain development, and cuts to new oil fields are expected to offset expected growth in U.S. oil production. [61] At $35 per barrel of crude oil, only 16 shale producers were able to operate new wells profitably, and most producers expected a price per barrel of $55 to $65 in 2020. [62] Consultant Wood Mackenzie estimated that for Brent of $25 per barrel, 10% of global oil production would not be able to cover its core costs, particularly heavy crude oil producers such as Venezuela, Mexico[63] and the oil sands in Canada, where the price fell below $5 per barrel.

[64] Forecasts by the U.S. Energy Information Administration show that due to the price war, U.S. crude oil production would fall from 13.2 million bpd in May 2020 to 12.8 million bpd in December 2020, before falling to 12.7 million bpd in 2021. [65] The shocking drop in prices, coupled with pressure from President Trump, who was concerned about the loss of jobs in the U.S. oil industry, prompted Riyadh and Moscow to abruptly change their approach and resume cooperation. The Organization of Petroleum Exporting Countries, Russia and other countries tentatively agreed on Thursday on a temporary cut in production. As a result of the COVID 19 pandemic, plant production and transportation declined, which also led to a decline in aggregate oil demand and oil prices. [14] February 15, 2020, the International Energy Agency forecast that demand growth would fall to its lowest level since 2011, with growth of 325,000 barrels per day over the full year, to 825,000 barrels per day and a decline in consumption of 435,000 barrels per day in the first quarter.

[15] Although global oil demand has declined, a drop in demand in Chinese markets, the largest since 2008, triggered an OPEC summit on March 5, 2020 in Vienna. At the summit, OPEC agreed to further reduce oil production by 1.5 million barrels per day by the second quarter of the year (an overall production cut of 3.6 million bpd from the original 2016 agreement), and the group is expected to review that policy on June 9 at its next meeting. [16] OPEC has asked Russia and other non-OPEC members to comply with OPEC`s decision. [13] On 6 March 2020, Russia rejected the request, marking the end of the unofficial partnership, as oil prices fell by 10% after the announcement. [17] [18] Oil prices fell by 10% when developments reignited fears of a price crash in 2014, when Saudi Arabia and Russia struggled to gain market share with the United States.