Oil Price War Ends With Historic OPEC+ Deal to Slash Output
OPEC+ alliance agrees to cut production by 9.7m barrels a day
The world’s top oil producers pulled off a historic deal to cut global petroleum output by nearly 1/10. This put an end to the devastating price war that brought the energy industry to its knees.
After a week-long marathon of bilateral calls and video conferences of ministers from the OPEC+ alliance and the Group of 20 nations, an agreement finally emerged to tackle the impact of the pandemic on oil demand.
The talks had almost fallen apart late last week amid resistance from Mexico. But it came back from the brink after a weekend of urgent diplomacy. President Donald Trump intervened, helping broker the final compromise.
OPEC+ will cut 9.7 million barrels a day — just below the initial proposal of 10 million
The production restraints are set to last for about two years, though not at the same level as the initial two months. Copying the model adopted by central banks to taper off their bond buying, OPEC will also reduce the size of the cuts over time. After June, the 10 million barrel cut will be tapered to 7.6 million daily until the end of the year. And then it will cut to 5.6 million through 2021 until April 2022.
The U.S., Brazil and Canada will contribute another 3.7 million barrels on paper as their production declines. Other G20 states will contribute 1.3 million. Still, the G20 numbers don’t represent real voluntary cuts, but rather reflect the impact that low prices have already had on output and would take months, perhaps more than a year, to come into effect.
Under the terms, Saudi Arabia will cut its production just a fraction under 8.5 million barrels a day. This is its lowest level since 2011. The OPEC+ deal measures the Saudi cut from a baseline of 11 million barrels a day, the same as Russia.
Mexico won a diplomatic victory as it will only cut 100,000 barrels
This amount, less than its pro-rated share, having blocked the deal since the plan was first revealed on Thursday. Now its future inside OPEC+ is uncertain, as it’s expected to decide whether to leave the alliance.
The biggest winner appears to be Trump
U.S. president Donald Trump refused to actively cut American oil production and personally brokered the deal over phone calls with Mexican President Andres Manuel Lopez Obrador, Russian President Vladimir Putin and King Salman of Saudi Arabia. Trump became the first American president to push for higher oil prices in more than 30 years.
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