OPEC and its non-member allies, known as OPEC+, has on Sunday agreed to cut their oil production by the biggest amount in history to support prices amid the coronavirus pandemic. The alliance also noted that it had a deal with non-allied producers, including the US, to reduce global oil supply by a fifth.
OPEC+ will slash production by 9.7 million bpd for May and June, the reduction will be relaxed after June but will stay in place until April 2022. The group said it expected total production cuts by global oil producers to reach over 20 million bpd, about 20% of the world's supply.
Under the pact, some OPEC+ producers will cut their output steeply. The total global reduction will also involve participation from non-members and strategic stock purchases by some of the world's energy consumers.
According to OPEC+ sources, non-member producers, the US, Brazil, Canada, Norway, and Indonesia would cut their output by 4 million to 5 million bpd. Meanwhile, the International Energy Agency (IEA) said The US, India, Japan, and South Korea could make about 3 million bpd purchases in the coming months. IEA will release its monthly report on Wednesday and provide an update regarding the purchase.
OPEC+ agreement hit a roadblock since Thursday when Mexico balked its designated production quota. However, Mexico's President on Friday said that Trump had offered to deepen US crude output cuts on his behalf.
Measures to contain the coronavirus pandemic have destroyed global oil demand and created a crash in oil prices. Some analysts estimate demand to have plunged by 30 million bpd, and hence, even the largest-ever production cut would not be enough to prevent prices from collapsing further. Last week, UBS and Goldman Sachs forecast that Brent prices would retreat to $20/barrel.
