Reacting to plummeting oil prices as a result of the Covid-19 coronavirus pandemic and an ongoing price war between Saudi Arabia and Russia, members of the Organization of Petroleum Exporting Countries (OPEC) reached an agreement with Russia, Mexico, the United States and seven other major oil producers to cut production.
The agreement calls for production to be reduced by 9.7 million barrels a day (mb/d) in May and June. For the subsequent period of 6 months, the total adjustment will be 7.7 mb/d, followed by a 5.8 mb/d adjustment from Jan. 1 2021 to April 30 2022. The extension will be reviewed during December 2021.
With Covid-19 effectively halting air and ground travel, demand for gasoline, jet fuel and diesel is collapsing. The price of oil has plunged from US$70 in early January to around US$20, imperiling oil-dependent countries.
On top of the OPEC+ agreement, oil producers in the G-20 will contribute their own output reductions, but those measures were in no way equivalent to the immediate cuts promised by the cartel. The US agreed to help the oil monopoly by cutting production by 300 000 barrels a day.
Drops in production that have already happened because of low prices in the U.S., Brazil and Canada will be counted under the agreement, deepening the global supply reduction by 3.7 mb/d, with other G-20 states contributing 1.3 million.