OPEC+ and Russia Agree to Reduce Oil Supply, Hoping to Sustain Price

RIO DE JANEIRO, BRAZIL – Riyadh and Moscow have agreed to reduce oil extraction by up to 10 million barrels per day and include other countries, among them the US and Brazil. Mexico maintains its ambiguous position.

The price war between the oil powers is over. All major oil producing countries  (Opec+) except for Mexico have agreed to cut production in May and June by 10 million barrels per day, following marathon negotiations to tackle the price collapse.

Thirty-four days after the resounding rupture between Saudi Arabia and Russia, respectively the world’s second and third largest producers, the two countries have reached an agreement this week to cut supply.

In addition to this figure, cuts were also made by other non-Opec producers, such as the United States and Brazil, in order to contain the recent price collapse.

The agreement shows that, even if they would survive for a few more weeks, no one is interested in having the Brent sold for US$ 30 – and much less at around US$20, a price reached in late March.

The decision also allows for greater future stability for producing countries that, in some cases, were being forced to sell at a price below cost, as global demand has dropped by over 30 percent since the onset of the Covid-19 pandemic.

However, the market, which initially reacted with sharp rises, has been declining, as the theory emerged that the initiative, yet to be fine-tuned, will be insufficient to rebalance a deeply affected sector.

The agreement between the Organization of Petroleum Exporting Countries (OPEC, led in practice by Saudi Arabia) will result in the gradual removal from the market of just over a tenth of world oil production, a substantial figure at a time when supply and demand are more unbalanced than ever.

“The coronavirus is a beast never before seen, which sweeps everything in its path,” said OPEC Secretary General Mohammed Barkindo in his speech to open the teleconference.

“The fundamentals of supply and demand are horrific,” he added.