OPEC and allies finalize record oil production cut after days of discussion

OPEC and its oil-producing allies on Sunday finalized a historic agreement to cut production by 9.7 million barrels per day, following multiple days of discussions and back-and-forth between the world’s largest energy producers.

Sunday’s emergency meeting — the second in four days — came as oil-producing nations scrambled to reach an agreement in an effort to prop up falling prices as the coronavirus outbreak continues to hammer demand. The agreement also ends a price war that broke out between Saudi Arabia and Russia at the beginning of March, which further pressured oil prices as each sought to gain market share.

The Saudi energy minister said on Sunday that effective oil supply cuts by OPEC and its allies, a group is known as OPEC+, will amount to 12.5 million barrels per day, because of higher output in April from Saudi Arabia, the United Arab Emirates and Kuwait. Three OPEC+ sources said non-members Brazil, Canada, Indonesia, Norway and the United States would contribute 4 million to 5 million bpd.

The group, known as OPEC+, initially proposed cutting production by 10 million barrels per day — amounting to some 10% of global oil supply — on Thursday, but Mexico opposed the amount it was being asked to cut, holding up any final deal. 

Talks continued on Friday when energy ministers from the Group of 20 major economies met, and while all agreed that stabilization in the market is needed, the group stopped short of discussing specific production numbers.

The biggest oil cut ever is more than four times deeper than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in production will stay in place until April 2022.

Under OPEC+’s new agreement, Mexico will cut 100,000 barrels per day, instead of the 400,000 barrels per day it had initially been asked to cut. The 9.7 million barrels per day cut will begin on May 1, and will extend through the end of June. The overall expected cut by all oil-producing countries is expected by 19 million bpd.

OPEC+ is hoping that nations outside of the group, including the US, Canada and Norway, will also cut back on production in an effort to shore up prices. Both the UK Brent crude oil and US crude oil, maybe staying in consolidation form until the international agreement finalized.