The Organization of the Petroleum Exporting Countries (OPEC) and its allies have agreed on a historic 10 million barrel per day oil production cut.
Oil markets are said to be giving an underwhelmed reaction unless the incoming G20 meeting would ignite a spark.
With the majority expecting that oil would drop this week, the historic production cut agreement has finally been settled.
Production cuts, adjustments laid out
An OPEC press release stated that the 10 million barrel production cut will start on May 1 for an initial period of two months that concludes on June 30.
The following downward adjustments of oil crude production were also tackled:
- Eight million barrels/day for the subsequent period of six months, from July 1 to December 31, 2020.
- Six million barrels/day for a period of 16 months, from January 1, 2021, to April 30, 2022.
The baseline for the calculation of the adjustments is the oil production of October 2018, except for Saudi Arabia and Russia, both with the same baseline level of 11 million barrels per day.
The agreement will be valid until April 30, 2022, and the agreement extension will be reviewed in December 2021.
Everyone agrees on the oil deal, except for Mexico
Although the deal was agreed on by all OPEC and non-OPEC producers participating in the conference, Mexico expressed doubts over the agreement.
México en el consenso para estabilizar el precio del petróleo en la reunión de la @OPECSecretariat ha propuesto una reducción de 100 mil barriles por día en los próximos 2 meses. De 1.781 mbd de producción que reportamos en marzo del 2020 disminuiremos a 1.681 mbd. @GobiernoMX
— Rocío Nahle (@rocionahle) April 10, 2020
Mexico’s Secretary of Energy Rocio Nahle said that the country would be willing to cut production by 100,000 barrels per day for the next two months.
A Reuters report suggested that OPEC had asked for a cut of 400,000 barrels per day.
Oil prices moved lower on April 9 as investors feared it would still not be enough to combat the unprecedented demand loss from the coronavirus.
Rystad Energy’s head of oil markets Bjornar Tonhauge expressed disappointments as he reported:
“Although 10 million bpd will help the market on the short term to not fill up storage, it is a disappointing development for many, who still realize the size of the oil oversupply.”
Oil shatters hopes for analysts
Earlier, West Texas Intermediate rose around 10% on reports that Saudi Arabia and Russia were discussing cuts that could have taken 20 million barrels per day of global production offline.
In light of the recent developments of the agreement, Helima Croft, RBC’s global head of commodities research, added:
“The market has been underwhelmed by the proposed 10m/bd production cut, perhaps because of early expectations of a massive 20m/bd reduction […] However we contend that it is crucial to turn off the tap off the tap in the midst of colossal demand crash and bring the price war to a swift conclusion.”
As oil markets are closed on Good Friday, April 10, investors are awaiting the developments that will take place on the G20 video meeting. It remains to be seen if Mexico will be convinced to agree on the current deal.