OPEC and its oil producing allies OPEC+ finalised on Sunday a historic agreement on oil production cut by 9.7 million barrels per day. This is the single largest output cut in history.
The agreement followed 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 a bid to prop up declining prices as the coronavirus outbreak continues to hammer demand for crude.
The agreement also puts an end to a price war that broke out between Saudi Arabia and Russia at the beginning of March, which further put pressures on oil prices.
The group, known as OPEC+, initially suggested on Thursday slashing production by 10 million barrels per day — amounting to some 10 percent of global oil supply. Yet, Mexico rejected the amount it was being asked to cut, holding up the final deal.
Talks went on on Friday when energy ministers from the Group of 20 major economies met, and while all agreed on the necessity of the market stabilization, the group stopped short of discussing specific production numbers.
Under OPEC+’s new agreement, Mexico will slash 100,000 barrels per day, instead of the 400,000 barrels per day it had initially been asked to lower.
The 9.7 million barrels per day cut will be effective on May 1, and will extend through the end of June. The production ncuts will then taper to eight million barrels per day from July through the end of 2020, and six million barrels per day from January 2021 through April 2022, according to the agreement.
“This is at least a temporary relief for the energy industry and for the global economy,” Rystad Energy’s head of analysis Per Magnus Nysveen told CNBC in an emailed statement.
“Even though the production cuts are smaller than what the market needed and only postpone the stock building constraints problem, the worst is for now avoided.”