OPEC+ agrees to cut world oil production
Vienna, April 13 (IANS) The oil-producing countries of the OPEC+ alliance have agreed to cut their crude production by some 9.7 million barrels per day (mbd) in an historic accord to stabilize world petroleum prices.
“At the end of the telematic ministerial meeting of the OPEC+ members and those that are not a part of OPEC+ an agreement was signed to cut petroleum production by 9.7 million barrels per day over two months, starting on May 1,” Kazakhstan's Energy Ministry in a statement on sunday.
The Iranian Petroleum Ministry, meanwhile, said on Twitter that the OPEC+ members accepted Mexico's proposal to reduce its world production to 100,000 in May and June, reports Efe news.
After that, the initial 10 million barrel cutback, which is the biggest oil output cut in history, will be pared to just 7.6 million barrels per day until the end of this year and then to 5.6 mbd until April 2022.
The talks among the oil states took a week, including four days of video-conferences among government ministers from OPEC+ nations and the Group of 20, and the negotiations almost foundered because of Mexico's resistance to making production cuts, but determined diplomacy, including the intervention of US President Donald Trump, ultimately resulted in the agreement.
Trump had threatened to impose oil tariffs on Saudi Arabia, along with other measures, if Riyadh did not move urgently to correct the oil market's huge oversupply problem.
The Kingdom had originally increased its production a month ago apparently in an effort to hurt both the Russian oil industry and the US shale oil industry, both of which are big competitors for its own oil exports.
On Sunday, Mexican Energy Secretary Rocio Nahle said that the accord reached among the 23 countries participating in the talks and in the second of two video-conferences, was “unanimous” and will mean “a reduction in the petroleum platform by 9.7 mbd beginning in May”.
Although Mexico will wind up cutting its production by only 100,000 bpd, the US, Brazil and Canada will add another 3.7 million barrels on paper as their own production declines.
Azerbaijan's Petroleum Ministry said in a statement that in this 10th meeting of the members of the Organization of Petroleum Exporting Countries, along with non-OPEC members, “it was decided that the US will reduce its production by another 300,000 barrels per day to compensate” for what Mexico was being asked to cut from its own production.
Mexico was initially slated to reduce its oil production by 400,000 barrels per day, but it ultimately refused to cut back by that much.
On April 9, the OPEC+ alliance and other crude producing countries had reached a basic agreement to reduce petroleum supply by 23 per cent, given the plunge in world demand and the concomitant plummeting oil price amid the severe economic disruption brought about by the COVID-19 pandemic.
However, the parties were unable to reach an agreement last week because Mexico disagreed with the cuts it was being asked to make and abandoned the telematic conference.
Kuwaiti Oil Minister Khaled al Fadhel said on Sunday that, due to the “wise instructions, the continuous efforts and the continued conversations”, an “historic accord” to shore up the international oil market had been reached by the parties.
In a telephone call on Sunday, Trump and Russian President Vladimir Putin, as well as Saudi King Salman bin Abdulaziz, supported the production agreement reached by OPEC+.
Putin and Trump also held a separate private telephone conversation during which they discussed the situation in the world oil market and emphasized the “great importance” of cooperation within the OPEC+ forum to reduce oil production, thereby shoring up oil prices, the Kremlin said.
The price of Brent crude, which is the world's benchmark grade, has dived from some $70 per barrel earlier this year to around $20 per barrel, its lowest in almost 20 years, falling to about $20 a barrel, although recently it had rallied to about $32 per barrel.
The overriding question right now, however, is whether the cuts will be sufficient to stabilize the market, with the price for oil having collapsed due to plunging energy demand.
On April 8 when the outline of the OPEC+ deal was made public, the price of oil on the New York Mercantile Exchange slid more than 9 per cent indicating that traders thought the cuts would not be enough.